IPOs (Initial Public Offerings) . . .
refer to the first registered offering of company
securities to the general population of equity investors. They are
registered with the Securities and Exchange Commission and with the
securities commissions of the states in which the company’s
securities will be offered and sold. The registration of an IPO
requires the preparation of a detailed offering memorandum in a form
prescribed by the SEC. According to the requirements, the offering memorandum
must contain an extensive description of the company, its reasons for
conducting an offering, the qualities of the securities being sold, an
analysis of the risks inherent in investing in the company, and a
description of how the company will utilize the proceeds of the
offering. Disclosures regarding the stockholding and compensation
arrangements of management and persons with significant stockholdings
in the company are also required. Detailed audited financial
statements must be provided too.
Conducting an initial public offering is a painstaking
and time-consuming project that requires extensive due diligence by
the company’s counsel, accountants, and underwriters and a serious
time commitment by management before, during, and after the offering.
The offering process usually takes at least three to six months to
complete. Typically, these months of preparation include an extensive
review of company documents, the preparation of audited financial
statements, numerous due diligence meetings between company personnel
and the company’s advisers, and several drafting sessions (often
referred to as "all hands meetings") for the offering
memorandum. The preparation also includes filings and discussions with
the Securities and Exchange Commission and with state securities
commissions to secure proper registration for the offering, and a
"road show" during which the underwriter and company
officials take their offer "on the road" to sell the company’s
Although IPO schedules vary widely from company to
company and are sometimes compacted or expanded to respond to the
perceptions of the company’s underwriter as to the best time to sell
the company’s stock, a representative IPO schedule might look
something like this:
Day 1 - Organizational all hands meeting to set
schedule and assign responsibilities.
Day 2 - Begin due diligence interviews and
documents review. Distribute officers and directors questionnaires.
Begin selection of transfer agent, printer and others. Begin
preparation of offering circular by company counsel and required
financial statements by the company’s outside accountants.
Day 10 - Distribute first draft of offering circular.
Day 20 - First all hands drafting session to review
and revise offering circular. Second draft is re-circulated ten days
Day 40 - Second all hands drafting session.
Day 50 - Final all hands drafting session to make any
final revisions and sign offering circular.
Day 55 - File offering circular with the Securities
and Exchange Commission. Issue press release.
Day 65 - Begin road show to sell securities. Proceed
with state securities registrations.
Day 90 - Receive comment letter from Securities and
Exchange Commission. Prepare response or amendment to offering
circular, as appropriate.
Day 100 - Determine offering price. Complete state
securities filings. File amendment to offering circular if necessary.
Day 115 - Effective date, offering commences.
Day 120 - Closing. Company issues securities. Offering
proceeds transfer to the company.
Of course, the schedule only outlines some of the
major undertakings involved in an initial public offering. The process
also involves directors’ meetings, extensive due diligence meetings,
and the negotiation and execution of contracts with underwriters and
others. Often, the process includes the preparation and adoption of
employee stock incentive plans or substantial corporate
"cleanup" to get the company’s books, records, and systems
into proper order to become public. See:
Laws, Going Public,
Stock, Private Placements, Public
(Securities and Exchange Commission),