How
Long Will the IPO Process Take?
You can expect the actual IPO process
to take at least six months. However, from the time you begin
to make preliminary plans and assemble an IPO team, the process
can easily consume a year - or more. While the actual timeline
may vary, the steps will follow a certain chronological order.
FIRST 8 WEEKS
Preparing the Registration Statement
During the first eight weeks of
the process a number of important activities will be occuring
concurrently. The most important of these will be the preparation
of the registration statement required by the SEC. This will
generally involve your internal management team as well as
outside accountants and attornies. In addition to preparing
the registration statement, these preliminary activities will
include:
- Preparing the Service Agreements
- Selecting an Underwriter
- Identifying and Resolving
Potential Issues
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SECOND 8 WEEKS
SEC Review
The second eight weeks will be dedicated
primarily to the SEC review of your initial registration statement.
The SEC is on its own timeline and is limited by its own internal
bureaucracies and staffing considerations. You will have to
exercise patience here. Attempting to rush the SEC will generally
prove counterproductive. They will respond when they respond.
You will definitely want to have a single point of contact
with the SEC. Your accounting firm will generally be the best
point of interface with the SEC through the process.
NEXT 2-8 WEEKS
Ammendments to the Registration
Statement
Once the SEC has completed its initial
review of your registration statement it will issue a comment
letter. This comment letter will highlight any deficiencies
and request a number of proposed changes to the registration
statement. Armed with this comment letter, your IPO team will
be required to answer each of the concerns and make necessary
changes before submitting an ammended registration statement.
The SEC approval process will be
an iterative one. Each time the SEC reviews your ammended
registration statement they will likely have additional comments.
Each of these comments must be dealt with in a manner that
is considered satisfactory to the SEC. Of course it is possible
to challenge the SEC on some of its findings if the changes
are considered to be too onerous. However, it should be remembered
that the IPO will not proceed until you have the final blessing
of the SEC. To the extent possible, you should attempt to
comply directly with change requests. Gaining final approval
may require submitting four or five revisions of the registration
statement. As you get into the final stages of the approval
process, many of the details and negotiations with the SEC
will be handled more expeditiously over the phone. Again,
the appropriate point of contact here is typically your accountant.
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NEXT 2 WEEKS
Issuance of a "Red Herring"
Once you get to a point with the
SEC where you feel that there are no "material"
concerns ramaining with the registration statement, your underwriter
may advise you to issue a preliminary prospectus - commonly
referred to as a "Red Herring." A "Red Herring"
is a strawman prospectus that is sent out to prospective investors
and appropriately caveated to ensure that investors know that
it has not been formally approved by the SEC and that it is
subject to change.
NEXT 2-3 WEEKS
Roadshow
The roadshow is a critical part
of drumming up investor support for the offering. Roadshows
are very intense and heavily orchestrated. The roadshow is
an opportunity for the senior management of your company (typically
the CEO and CFO) and the underwriters to get out and present
the business plan to investors around the country. As a general
rule, the company management will perform the presentation.
The underwriters will be there to gain insights into the attitudes
of investors and to gauge levels of interest in the potential
offering.
The roadshow circuit can be grueling.
Fortunately it is relatively short-lived. Expect to do two
or three presentations per day over a two or three week period.
Increasingly, companies are taking advantage of the internet
to put their road shows on-line. This allows a much greater
level of penetration among potential investors than a physical
roadshow allows by itself. During and immediately after the
roadshow the underwriters will be working closely with investors
to gain preliminary commitments for the offering. At the conclusion
of this effort, the underwriters should have a pretty solid
handle on how many shares they can sell and at what price.
NEXT 1-2 WEEKS
Closing the Deal
Once final SEC approval has been
obtained, and the roadshow is complete, it is time to close
the deal. The time you have been waiting for has finally arrived.
Prior to closing, the final price will be set by the underwriter
and the final prospectus will be distributed to investors.
The ultimate size and price of the offering will be determined
by market supply and demand. At this point a pricing ammendment
will also need to be provided to the SEC to reflect the final
offering price.
If the groundwork has been properly
done, then the closing will largely be a formality. However,
it is important to understand that appropriate closing protocols
and requirements must be strictly adhered to. You do not want
to take a chance on derailing the process this late in the
game. Under no circumstances can the closing occur until the
SEC has declared the registration statement to be effective.
Once the SEC has issued its final ruling and the pricing ammendment
has been filed with the SEC, the final underwriting paperwork
can be signed and the underwriter may commence the process
of issuing shares and taking in the proceeds.
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