The Key Stages of An IPO Explained

The Key Stages of An IPO Explained

Reading time: 8 minutes

Launching an IPO or Initial Public Offering is a significant event for any privately-held company. It is one of the biggest sources of external funds a company can obtain. Businesses make their stocks available to public investors for the first time through an IPO and become listed in the capital markets.

However, the process does not take place as a single event. Instead, a series of activities start long before the actual launch of the IPO and continue after it. Today, we’ll take a deep dive into the process of discovering a business's activities throughout its IPO journey, starting with the Pre-IPO stage.

Stage 1: Pre-IPO Stage

The Pre-IPO Transformation stage, or pre-IPO stage, marks the beginning of the IPO process. It involves a private company and its owners deciding whether the business is ready to go through the rigours and rewards of becoming a public company. The process requires significant preparation and strategic foresight.

The following activities take place at this stage.

  • Self-evaluation: First, companies thoroughly evaluate their financial health and business model, considering growth prospects and market competition. Certified independent consultants often help with the valuation process through industry-standard metrics.
  • Analysing options: Businesses often analyse whether they should opt for a direct listing instead of issuing new shares in an IPO process. Another option for some businesses is to operate as a Special Purpose Acquisition Company (SPAC), which goes through the IPO process to facilitate a merger or acquisition.
  • Internal structure: Companies strengthen their management team and board of directors and form a strong corporate governance structure. Businesses often seek consultation from professional consulting firms to ensure they’re well-prepared to navigate the challenging regulatory environment once they go public.
  • IPO team: Companies then assemble their IPO team, which consists of investment banks, lawyers, book-building professionals, consultants, PR professionals, and auditors to ensure perfection with all tasks at hand.

After assembling the team, a company prepares the documents and filing.

Stage 2: Filing of Documents

The IPO journey's second phase is about preparing meticulous documents to meet the regulatory requirements. At this stage, the company aims to provide potential investors with a detailed breakdown of its operational activities, future growth projections, and financial and operational plans.

  • Creating the prospectus: The prospectus is a comprehensive and formal document that outlines the company’s business model, financial plans, risk factors, and organisational structure. The business also outlines how to use the liquidity raised from the IPO and specifies the number of shares. The previous track record of a company plays an important role in creating a favourable image.
  • SEC filing: The company prepares the Form S-1 registration statement, a formal document to submit their prospectus for filing with the governing body of the respective country. The Securities and Exchange Commission (SEC) is the approved regulatory body in the US for issuing IPO permission; in the UK, it is the Financial Conduct Authority (FCA). Before submitting the document with specific details, including share price and quantity, companies file a preliminary prospectus called a red herring.
  • Quiet period: After applying for regulatory approval followed by due diligence, the regulators require the company to enter a quiet period when the management is not authorised to release sensitive information as specified by the relevant regulatory body.

Stage 3: Going Public

The actual launching of the IPO takes place at this stage.

  • Roadshow: The primary purpose of a roadshow is to generate interest in a company’s shares and prospects to potential investors, which include institutional investors like investment banks, venture capitalists, mutual funds, and holding companies. Top executives and professional underwriters participate in this marketing campaign.
  • Determining IPO price and quantity: In collaboration with its financial partner and consultants, the company determines the final share price range and number of IPO shares.
  • Listing and trading: With final regulatory approval, the company goes public in a specific stock exchange. The New York Stock Exchange (NYSE) and NASDAQ are the two most significant stock markets in the US. Typically, businesses aim to get glowing press reviews before the launching date to create high anticipation among institutional and retail investors about the trading of shares.

Stage 4: Post-IPO Stage

The final stage in the IPO life cycle involves carrying out the responsibilities and meeting the expectations of becoming a publicly-traded company.

  • Regular reporting: Regulatory bodies require publicly-traded companies to disclose their structured financial statements and operational details for specific economic periods. Cash flow, balance sheets and income statements must be reported. Companies look to consistently beat the earnings estimate as it indicates their financial strength.
  • Managing Investor Relations: Companies use designated PR departments to manage relationships with the investors and their expectations.
  • Navigating Market Pressures: Public companies face constant scrutiny from investors, analysts, and the market. Despite short-term stock price fluctuations, focusing on long-term business strategy and growth is crucial.

While the IPO journey means dealing with various challenging market conditions, the rewards of a successful IPO are worthwhile as it takes businesses and startups on the path of sustained growth and prosperity.

FP Markets

With FP Markets, you can trade over 10,000 stocks via CFDs (Contract for Differences). Rather than owning the underlying security, traders and investors can trade the underlying price movement and take advantage of rising and falling market prices.

Start Trading
in Minutes

bullet Access 10,000+ financial instruments
bullet Auto open & close positions
bullet News & economic calendar
bullet Technical indicators & charts
bullet Many more tools included

By supplying your email you agree to FP Markets privacy policy and receive future marketing materials from FP Markets. You can unsubscribe at any time.

Source - cache | Page ID - 34991

Get instant Updates in Telegram