An initial public offering (IPO) allows a company to unleash fresh growth and receive funds from public investors while also allowing private investors to profit from their investment.
The IPO Process is when a previously unlisted company sells new or existing securities for the first time and makes them available to the general public.
What is the IPO Process?
A company must go through an exhaustive IPO process before going public, which includes completing certain standards specified by the Securities and Exchange Commission (SEC). The journey to launching an IPO for a company that has decided to go public is long and lonely. An IPO process usually takes six to nine months to complete.
Here are 8 Easy Steps of IPO Process
The following are the steps that a company must take to become public through the IPO process:
# Step 1 – Select the investment bankers/underwriters
The company will enlist the support of financial specialists, such as investment banks, to begin the initial public offering process. The underwriters provide assurance to the firm regarding the funds obtained and operate as a link between the company and its investors. The specialists will also examine the company’s critical financial metrics and sign an underwriting agreement.
The following items are generally included in an underwriting agreement:
- The quality of research
- Industry expertise
- Amount to be raised
- Details of securities being issued
- Details of the deal
- Previous business dealings with an investment bank
# Step 2 – Registration for IPO
This IPO process include drafting a registration statement as well as a draught prospectus, often known as the Red Herring Prospectus (RHP). According to the Companies Act, submitting a RHP is required. This paper contains all mandatory disclosures required by the SEBI and the Companies Act.
Here’s a breakdown of RHP’s main components:
- Risk Factors
- Use of Proceeds
- Industry Description
- Legal and Other Information
- Business Description
# Step 3 – Verification by SEBI
The company’s disclosure of facts is then verified by SEBI, the market regulator. If the application is granted, the firm can set a date for its first public offering (IPO).
# Step 4 – Introducing Yourself (Company) to the Stock Exchange
The company must now apply to the stock exchange to have its initial issue floated.
# Step 5 – Promotion in the Market
Before an IPO goes public, the firm uses roadshows to generate interest in the market. The company’s leaders and employees will market the approaching IPO around the country for two weeks. This is a marketing and advertising strategy used to entice potential investors. The company’s main accomplishments are shared with a variety of stakeholders, including business analysts and investment managers. Question & Answer sessions, multimedia presentations, group meetings, online virtual roadshows, and other user-friendly methods are used by the executives.
# Step 6 – Set Pricing of IPO
Pricing are two types of IPO: Fixed price issue and Book building issue
In a fixed-price offering, investors are informed in advance of the price at which shares will be sold and assigned.
In a book building offering, however, the issuer provides a 20% range in which investors can bid for the shares. Only when the bidding has ended is the ultimate price set. An IPO pricing band is a 20 percent range of prices. Within this price range, both retail and institutional purchasers are invited to submit bids.
You may also read – How can I apply for an IPO?
# Step 7 – Before an IPO Launched
Internal investors (business insiders) are likewise barred from participating in the IPO. This is because it helps to calm the market by removing insider selling pressure.
# Step 8 – Allotment of Shares
Once the IPO price has been set, the firm and the underwriters will decide how many shares each investor will get. In the event of an overabundance, partial allotments will be made. Within 10 working days of the end bidding date, the IPO stocks are normally distributed to the bidders.