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IPO process - YouTube
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initial public offering or ipo is the
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process in which the owners of a
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business
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sell shares of their company to public
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investors
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in the previous video i fully answer the
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question of why companies are going
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through an ipo
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and what are pros and cons of being a
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public company
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today we are going through the entire
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ipr process and discuss what steps the
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company should have to do
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to go public for you as a private
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investor it could be useful to follow up
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on what's going on in the company you
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invested in
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pre-apo stages or if you are considering
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participating
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in an ipo let's do it
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[Music]
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an ipo generally takes around four to
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six months
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the first step of the ipr process
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requires the company to select
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an investment bank the company wants a
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bank that will sell
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shares to as many banks institutional
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investors or
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individuals as possible it is the bank's
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responsibility to obtain
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the buyers investment banks typically
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charge between three and seven percent
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of the ipos total sales price
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actually the prices of an investment
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bank handling an ipo is called
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underwriting a good underwriter can be
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the difference between a successful
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ipo and an ipo failure the second step
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in the ipo process is when the
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underwriter team
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begins doing its job it occurs three
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months before the ipo
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there is a pile of paperwork the company
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and the underwriter need to sign
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contracts and agree on the terms of
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cooperation
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after the investment bank files the s1
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registration statement with the sec
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it includes the prospectus it's a legal
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document provided to everyone who is
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going to buy
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the stocks it has detailed information
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about financial statements
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management background and any legal
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problems it also specifies
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the business model of the company who
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are the competitors
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who are the current shareholders and
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where the raised through the ipr money
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is to be used
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upon filing the company prospectus the
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sec will conduct the investigation to
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confirm that all the information
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submitted
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is correct and that all relevant
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financial data
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has been disclosed and then the road
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show starts an ipo road show is a
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traveling sales speech
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the management team presents the company
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all over the country or world
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and answers questions the company also
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accepts others from the institutional
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investors
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in the covet era these raw shows have
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gone virtual
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the next step is the final pricing of
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course the price of shares depends on
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the value of the company
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which is done by the valuation process
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and occurs before the ipr process
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even begins although the price could be
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also affected by the success of the
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virtual
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data on other volumes and prices offered
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by large investors on the roadshow
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helps to adjust the stock price range
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based on this feedback from investors
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the management team and bankers
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set the final ipo price it is called the
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cut-off price
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this is the highest price at which all
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the shares offered can be sold
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sometimes an ipo is oversubscribed it is
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when the total number of shares
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investors want to buy
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is higher than number of shares being
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offered
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in this case the available shares will
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be distributed proportionately
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to the investors suppose the hour
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subscription is 4 times
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the allotted number of shares if you
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applied for 100 shares
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you will receive only 25. of course i
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simplified the calculation for this
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example
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usually it could be slightly different
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process depending on the type of
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investor
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and the ipo lot size but now you
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understand the concept
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and won't be surprised if you
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participate in a hot ipo with your
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humble 500
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through a brokerage firm and will
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receive back 450
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on your account after a while it simply
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means the allocation for you was only 10
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percent
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here is an extreme example burger king
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ipo evoked a huge hour subscription of
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157 times
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as you can see the ipo market is very
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hot and competitive for investors
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therefore the allocation has become an
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issue here it does not mean that you
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should ignore
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ipos and kick this tool out of your
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portfolio no
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you have to figure out how to relocate
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that part of the money that wasn't
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applied to the current ipo and was
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returned
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on your account money should work for
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you a decent solution is pre-ipo stage
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where your capital always be fully
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realized and you still can expect good
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returns
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also a great alternative is etf on ipos
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for those who want to be in the booming
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ipo market but don't want to constantly
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devote time to it
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we discuss these tools in my next videos
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okay let's look into the final stages of
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the ipr process
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once the price is finalized and the deal
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is allocated
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the stocks start trading and the general
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public can buy and sell shares
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through the exchange immediately after
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the ipo there are no rules preventing
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price manipulation
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there are opportunities where the
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underwriter can buy and sell an
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additional portion of shares
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to keep the stock price at a reasonable
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level
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these stabilization activities can only
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be applied for a short period
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there is another post ipo provision such
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as the lookup period
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in the previous video it was mentioned
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that when a company goes public
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anyone who already owns shares could
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cash out and
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it is one of the reasons why the company
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goes through an ipo
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however those existing investors and
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employees need to wait about 180 days
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before selling their shares
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this avoids flooding the market with the
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company's shares and driving
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the price down as a retail investor
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sometimes you can avoid the lock up
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period we discuss it in the video how to
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invest
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in an ipo the final stage of the ipr
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process
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is the transition to the market
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competition which starts
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25 days after the initial public
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offering from now on market forces
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affect the valuation of the company
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supply and demand rules like it should
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be i'm tired just from describing the
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ipa process and i guess
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it's even more exhausting for company
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management
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so let's discuss alternative options for
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going public
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in my next videos first of all because
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it could be a really great tool for us
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as investors
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see you next time cheers
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[Music]
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you
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