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Understanding the IPO Process

An Initial Public Offering (IPO) is a company's first public issuance of stock, allowing it to raise capital from public investors. Companies typically go public to obtain new capital for expansion, ensure future access to capital, and make mergers and acquisitions easier. The IPO process involves selecting an underwriter, registering with the SEC, printing a prospectus, conducting a roadshow for investors, pricing the securities, and selling the securities to the public. While IPOs can raise a company's profile, the process is also expensive and results in increased reporting responsibilities and potential loss of control for founders.

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MeidianaAdhika
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Topics covered

  • prospectus printing,
  • IPO disadvantages,
  • IPO investor relations,
  • IPO challenges,
  • business expansion,
  • public offering,
  • IPO market analysis,
  • ownership transfer,
  • mergers and acquisitions,
  • firm commitment underwriting
83 views16 pages

Understanding the IPO Process

An Initial Public Offering (IPO) is a company's first public issuance of stock, allowing it to raise capital from public investors. Companies typically go public to obtain new capital for expansion, ensure future access to capital, and make mergers and acquisitions easier. The IPO process involves selecting an underwriter, registering with the SEC, printing a prospectus, conducting a roadshow for investors, pricing the securities, and selling the securities to the public. While IPOs can raise a company's profile, the process is also expensive and results in increased reporting responsibilities and potential loss of control for founders.

Uploaded by

MeidianaAdhika
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Topics covered

  • prospectus printing,
  • IPO disadvantages,
  • IPO investor relations,
  • IPO challenges,
  • business expansion,
  • public offering,
  • IPO market analysis,
  • ownership transfer,
  • mergers and acquisitions,
  • firm commitment underwriting

The Initial Public Offering (IPO)

By,
Bo Brown

Initial Public Offering (IPO)


Definition:

A companys first equity issue made


available to the public.
This issue occurs when a privately held
company decides to go public
Also called an unseasoned new issue.

Why do companies go public?

New capital

Future capital

Almost all companies go public primarily because they need


money to expand the business
Once public, firms have greater and easier access to capital in
the future

Mergers and acquisitions

Its easier for other companies to notice and evaluate a public


firm for potential synergies
IPOs are often used to finance acquisitions

Disadvantages of the IPO


Expensive

A typical firm may spend about 15-25% of the


money raised on direct expenses

Reporting

Public companies must continuously file reports with


the SEC and the stock exchange they list on

Loss

responsibilities

of control

Ownership is transferred to outsiders who can take


control and even fire the entrepreneur

Is it a good time to do an IPO?


There

are clear windows of opportunity that


open and close for IPO issuers
Determinants of suitability:

The general stock market condition


The industry market condition
The frequency and size of all IPOs in the financial
cycle

Outline of the IPO process:


1.
2.
3.
4.
5.
6.

Select an underwriter
Register IPO with the SEC
Print prospectus
Present roadshow
Price the securities
Sell the securities

1. Select an underwriter
An

underwriter is an investment firm that acts


as an intermediary between a company selling
securities and the investing public
The underwriter is the principal player in the
IPO
Typically, the underwriter buys the securities for
less than the offering price and accepts the risk
of not being able to sell them

Types of underwriting
Firm

The underwriter buys the entire issue, assuming full


financial responsibility for any unsold shares
Most prevalent type of underwriting in the U. S.

Best

commitment underwriting:

efforts underwriting:

The underwriter sells as much of the issue as


possible, but can return any unsold shares to the
issuer without financial responsibility

Leading IPO Underwriters


1.
2.
3.

Goldman Sachs
Morgan Stanley
Merrill Lynch

2. Register IPO with SEC


The

firm must prepare a registration statement


and file it with the SEC
The registration statement discloses all
material information concerning the corporation
making a public offering

3. Print prospectus
The

prospectus is a legal document describing


details of the issuing corporation and the
proposed offering to potential investors
Contains much of the information in the
registration statement
The preliminary prospectus is sometimes
called a red herring

4. Present road-show
The

road-show is presented to institutional


investors around the country
The road-show allows firms to raise interest in
the company and thus the price
Allows the firm and its underwriters to gather
information from potential purchasers

5. Price the securities


How

much to charge for giving away a part of


the firm is very important to the issuers
The securities are priced based on the value of
the company and expected demand for the
securities
Examples of valuation methods:

Net Present Value


Earnings/Price ratios

6. Sell the securities


A full-fledged

selling effort gets under way on


the effective date of the registration statement
A final prospectus must accompany the
delivery of securities

Average IPO returns over last 5 years


1996:
1997:
1998:
1999:
2000:

23%
24%
37%
276%
-7%

The End
Any Questions???

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