What is an IPO?

Any company that trades on the New York stock exchange has undergone an IPO, turning from a private company to a public company. A private company works with an investment bank to bring their shares public, which requires copious amounts of due diligence, marketing, and regulatory requirements. Investors can purchase shares of a new IPO company quite quickly after the IPO.

An IPO consists of two parts. The first is the pre-marketing phase of the offering, and the second being the actual initial public offering. When a company is interested in undergoing an IPO, it will advertise to underwrites by marketing and roadshows, and private bids to show its interest in going public.

Steps to Completing an IPO:

IPO can take anywhere from 6 months to a over a year to complete.

1. Select a bank
2. Due diligence and filings
3. Pricing
4. Stabilization
5. Transition

 

1. Select a bank                                                                                     The first step of an IPO is selecting the investment bank to advise the company throughout the process, who also provide underwriting services.

 

2. Due diligence and filings

This step includes the underwriter. Underwriting is financing or guaranteeing—is the process through which an individual or institution takes on financial risk for a fee. It is a service the investment bank provides to act as a broken between the issuing company and the public to help the issuing company sell its first set of shares. An underwriter drafts the following documents:

• Letter of Intent (LOI)
• Underwriting Agreement
• Registration Statement
• Red herring Document
• Engagement letter
• S-1 Registration Segment

 

3. IPO Roadshow

A roadshow is a series of presentations made in several locations leading up to an initial public offering. The roadshow is a sales pitch made by the underwriting firm and a company’s management team to pitch to potential investors before going public.

 

4. Pricing

After the IPO is approved and follows all the reporting guidelines of the SEC, the effective date is decided and put into place. The issuing company and the underwriter the decide the offer price that the shares will be sold, and the number of shares sold. IPOs are commonly underpriced, since investors are expecting the price to rise with demand. This step is very important as it decides what price the issuing company raises capital for itself. The below factors affect the offering price:

• The success/failure of the roadshows 
• The company’s goal
• Condition of the market economy

 

5. Stabilization

After the issue has been brought to the market, the underwriter must provide the company’s equity, helping with marketing and distribution, sell-side research support, and coordinating trading functions. There is a short window of opportunity here, since there is only a 25-day quiet period that occurs immediately after the IPO with no rules prevent price manipulation.

 

6. Transition

25 days after the Initial Public Offering is the timeframe that is considered the final stage of the IPO process, once the quiet period mandated by the SEC ends. This is the transition to the market competition. After the 25-day period ends, everything is now public and out of the underwriters’ hands. The underwriter can provide the company with estimates on the company’s earnings and post-IPO valuation. They move into the role of the advisor as the share fluctuate within the public market.

 

How We Can Help

We can help with all things IPO prep including:

1. Adoption of New Accounting Standards: Determine result new standards will have on finance statements.

Services include: ASC 606, ASC 842, ASC 326

2. Audit Preparation and SEC/Financial Reporting: Manage Audit with CPA Firm and complete required GAAP and IFRS. We can supervise entire IPO process, including public filings/footnote prep.

Services include: SEC FORM S-X/F-1, 10-K, 10-Q, 8-K filings, OTC/Private annual and quarterly statements.

3. Accounting for Complex Transactions: We provide expertise on accounting for new mergers and acquisitions, stock compensation, complex debt/equity.

Services include: ASC 805, ASC 718, ASC 480, ASC 815, and ASC 470

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