The stages of “going public” through an Initial Public Offering usually involve strict and regulated procedures. Most importantly, the process does not happen overnight. In fact, an IPO typically takes three to four months before a company can finally begin their first day of trading on the stock exchange.
A company can file an IPO through the help and expertise of an investment bank, also called “underwriters”. Investment banks can either work alone or with a team of banks to help distribute the funding, helping spread around the risks.
Negotiations between the banks and the companies take place, to determine how much money can be raised by the public offering. The type of securities to be issued will depend on the results of the final agreements.
The parties involved will then put together the necessary documents and registration statement that should be filed with the Securities and Exchange Commission. After investigations and other evaluations, the SEC will finally approve and set a date for the IPO. The same body will present a prospectus.
The Road Show
The financial information of the company doing the IPO in the form of the prospectus is then presented to potential investors around the world, thus, a “road show”. Underwriters have the legal power to grant shares to prospects before officially listing the stocks in the exchange.
Pricing and Going Public
The company and the underwriter will be the ones to decide the pricing. Some factors, however, will be considered like the present market condition and more importantly, the results of the road show. Choosing which exchanges are allowed to get the new stocks also requires decision-making from both the firm and the underwriter.
After the selection and following the date set by SEC, the company can now finally go public for the first time.