[18]
After hitting a rough patch earlier this year
due to the pandemic, the IPO season really
[24]
took off in the latter half of 2020 in North
America. According to an October 2020 report
[32]
by Ernst and Young, there was a 14 per cent
year-to-date climb in the total number of
[38]
IPOs filed globally this year, and a 43 per
cent year-to-date rise in their proceeds of
[47]
US$ 165.3 billion. The report added that in
North and South America together, IPO activity
[57]
raised about US$ 62.4 billion in proceeds.
[63]
But what does it take for a company to go
public? Let’s discuss the steps in detail.
[76]
There’s quite a bit of cost involved, starting
with the fees for underwriters.
[81]
Then, there’s a host of obligations the
company must follow for the completion of
[86]
the initial public offering.
[89]
First and foremost, the organization needs
to select an investment bank for
[100]
advice and underwriting services. Next, it
would have to get through the due diligence
[107]
and regulatory filings. Once the IPO gets
a green light from the U.S. Securities and
[114]
Exchange Commission (in case of filing from
US markets) and a date is set.
[126]
The company and the underwriter will now decide
on exactly how many shares would be sold and
[134]
at what price, a.k.a., the offer price.
[138]
Then comes the part where the issue hits the
market and the underwriter is required to
[146]
present recommendations by analysts
[163]
and after-market stabilization. The underwriter
would also have to create a market for the
[170]
shares that are issued.
[171]
Finally, there’s ‘transition to market
competition’. This step kicks off 25 days
[179]
after the IPO, which is a SEC-mandated “quiet
period”.
[183]
After the 25-day quiet period, underwriters
can give estimates about the issuing company’s
[193]
earnings and valuation.
[195]
So, how would you know if your IPO was successful?
[209]
An IPO is deemed successful when the issuing
company’s market cap is equal to or more
[223]
than that of its industry competitors within
30 days of the launch. It is also considered
[230]
successful if the difference between the company’s
offering price and market cap is less than
[237]
20 per cent 30 days after the IPO.
