In the last blog, we decoded the concept and the ingredients of the Initial Public Offering (IPO). We talked about what a company needs to be IPO-ready and what values decide if the step will work in its favour or against it. In this blog, we will explore the actual process of an IPO—how to file it, what to expect, and what steps to take.
As a reiteration, an IPO is a process where an unlisted company sells new or existing securities and decides to offer them to the public. Essentially, an IPO is a term used when companies do that for the first time.
Before an IPO, a firm is deemed private—with fewer shares, restricted to authorised stakeholders such as angel investors or venture capitalists, and high net-worth individuals, including founders, family, or even friends. Following an IPO, the issuing firm is publicly traded on a recognised stock exchange, and for this very reason, an IPO is also referred to as going public.
There is a series of steps that need to be followed in order for the IPO to be initiated.
First of all, you will need to appoint an investment bank or an underwriter to start the process. These financial specialists handle the IPO procedure on the company’s behalf and serve as a bridge between the firm and the investors.
So, the first stage is selecting an investment bank to advise on an IPO. How is this done? By making a careful selection based on the reputation of the institution, the level and standard of research it has been into, the range of industry knowledge, and the scope of the organisation’s capability of distribution.
After a financial institution is zeroed in on, you need to take care of statutory submissions and other due diligence. Underwriting is the procedure through which an investment bank serves as a middleman between the firm and the investing public. The aim is to assist the issuing company in selling its initial set of shares.
This step also confirms if the IPO is viable and necessary permissions are acquired at this time. Next in line is setting an effective date for the approval of the IPO with the authorities. On the day before the effective date, the issuing company and the underwriter discuss and reach a consensus on the price that will be offered to the public per share. They also discuss and decide upon the exact number of shares to be sold.
And that’s when you proceed to the last and final step. It’s then time for a transition to market competition.
This is when the investor’s focus shifts from relying on delegated disclosures to market forces for information about stocks. At this stage, a company needs to make sure the word is spread to its customers across channels and media. Going public is a big decision, and it is therefore celebrated with equal vigour. Think of all those NASDAQ listings that are plastered across online and traditional media spaces, wherein it looks nothing less than a celebration.
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