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The IPO ProcessThe IPO Process
Why Do Companies Go Public?Why Do Companies Go Public?
• Fund Growth Plans• Currency for M&A• Recap (retire debt)• Liquidity• Employee compensation• Enhanced Image
– Landlords– Creditors/Suppliers– Recruiting/Retention
Underwriter’s CriteriaUnderwriter’s CriteriaCompany CharacteristicsCompany Characteristics
• Growth Prospects
• Predictability of Results
• Management Team
• Historical Track Record – Size;Profitability
• First Mover Advantage
• Sponsorship
Underwriter’s CriteriaUnderwriter’s CriteriaSector/Market CharacteristicsSector/Market Characteristics
• Overall Size
• Growth Rate
• Competitive Dynamics
• Comparable Companies’ Performance
• Institutional Appetite
Underwriter’s CriteriaUnderwriter’s CriteriaIPO Market ConditionsIPO Market Conditions
• Backlog
• Cash Inflows to Mutual Funds
• Deals Pricing Below/Within/Above Range
• Withdrawn vs. Completed Offerings
• Market Performance of Recent IPOs
• Stable Economic Climate
Underwriter’s CriteriaUnderwriter’s CriteriaFirm FocusFirm Focus
• Research Expertise
• Distribution Capabilities
• Corporate Finance Focus
• Chemistry
• Geography (retail offices)
Selecting UnderwritersSelecting Underwriters
• Types of Investment Banks• Lead vs. Co-managers• Distribution Capabilities – Institutional, Retail,
International• After Market Support
– Research– Trading
• Ongoing Corporate Finance Support• Culture of Firm
Lead ManagerLead Manager
• Orchestrates Drafting, Due Diligence, Syndicate, Sales, After Market
• Negotiates Fee Split
• Allocates Shares
• Leads Pricing Call
• 15% Over Allotment Option
Fee StructureFee Structure
• Gross Spread - 7%– Management Fee– Underwriting Fee– Selling Consession
• Jump Ball• Fixed Fee
Pitch BookPitch Book
• Executive Summary• Capital Markets Update• Company Positioning• Valuation• Structure and Timing of IPO Process• Track Record of Investment Bank• Team Members…Commitment• References
Organizational MeetingOrganizational Meeting
• Participants– Company– Company Counsel– Underwriters (two or more)– Underwriter’s Counsel– Company’s Accountants
Organizational MeetingOrganizational Meeting
• Transaction Issues• Due Diligence Interviews• Document Request List• Facility and/or Store Tours• Initial Drafting
– Outline Story– Position the Company
• Schedule of Key Dates
Transactional IssuesTransactional Issues• Size of Offering
– Not More Than a Third– Company vs Secondary Shares– Over Allotment Option– Split
• Lock-ups – Who and How Long• Use of Proceeds
– Debt Retirement– Working Capital– Growth
• Legal– Corporate Status– Quiet Period and Ordinary Course Announcements– Anti-Takeover Provisions
• Misc– Comfort Letter– Selection of Printer– Transfer Agent– Bank Note Company– Reservation of Stock Symbol– Authorized Shares– S-8 for the Employees Option Plan– Directed Stock
Prospectus “Selling Document”Prospectus “Selling Document”
• Five to Eight Drafting Sessions
• File Registration Statement with SEC
• SEC Review (30 days)
• SEC Comments
• File Amendment 1 with SEC
• Print and Distribute “Red Herring”
ProspectusProspectus• Cover• Summary• The Compnay• Risk Factors• Use of Proceeds• Dividend Policy• Capitalization• Dilution• Selected Financial Data• MD&A• The Business• Management and Security Holders• Description of Securities
Registration StatementRegistration Statement
• Prospectus• Exhibits
– Underwriting Agreement– Articles of Incorporation– Opinion of Company Counsel– Stock Option Plan(s); 401(k) Plan– Employment Agreements– Registration Rights Agreements– Material Contracts– Computation of Earnings per Share– Consents
Marketing ProcessMarketing Process
• Marketing Documents– Prospectus– Roadshow Presentation– Insitutional Sales Teach In– Retail Broker Fact Sheet
• Distribution Strategy– Mix of Institutional and Retail– Directed Shares– Syndicate Structure– Roadshow– Share Allocation
Marketing StrategyMarketing Strategy
• Institutions with history of buying, holding and increasing positions
• Institutions which own comparable companies
• Build momentum before NY and Boston
• Create perception of scarcity
The Road ShowThe Road Show
• Two to Three Weeks
• Organized and paid for by underwriter
• Provides info about the company in one-on-one meetings with prospective investors
• Build the book
Going EffectiveGoing Effective
• Acceleration Request
• Pricing the Offering
• Final Prospectus Printed
After Market SupportAfter Market Support
• Timely, Accurate and Insightful Research– Coverage begins after a 25 day quiet period
• Follow up Road Shows
• Investor Conferences
• Active Market Making
Life As a Public CompanyLife As a Public Company
• Reporting– Qs, Ks, Press Releases, Conference Calls, Reg FD,
Forward-looking Statements,• Trading Blackouts• Proxys• BOD Liability• Investor Relations• Secondary Offerings
– Additional Cash– Enhance the Float– Orderly Exit for Large Holders