An initial public offering (IPO) is the first non-private sale of securities by an issuer or a person controlling the issuer to members of the public. Generally, any offering that is not exempt under the private offering exemption of the Securities Act of 1933 (Regulation D) is a public offering.
There are several steps that must be taken before a company can make a public offering. The following is a basic layout of what must be done:
- Determining the value of the company – Usually, a company must be valued at between $50 million to $100 million after a public offering to attract an institutional following. Evaluating comparable companies is an effective way of determining your own company’s value.
- Deciding on the amount of the offering -The offering must be worth at least $15 million and total more than 2 million shares in order to attract institutional buyers.
- Selecting managing underwriters – Selecting the appropriate managing underwriters is a vital and difficult task. Issuers should look for managers that are both reputable and large, yet have the time and commitment to treat the client with personalized attention.
- Figuring out the timeline to market – It typically takes between six to ten weeks to prepare the registration statement and prospectus included in an IPO filing, plus an additional five to seven weeks to complete the c review process. Issuers must coordinate this schedule with their company’s financial reporting cycles, since financial statements cannot be more than 135 days old at the effective date of the IPO.
- Enacting a quiet period – The company should cease all press and other public activities once a decision has been reached to begin the IPO process. Doing so will minimize the risk of activities such as insider trading and other forms of securities fraud.
Yes. If your company is considering making a public offering, you need to contact a finance attorney. The formalities of planning an IPO make the process both extremely complex and technical. Speaking with a business law attorney will ensure that you do not violate any SEC regulations as well as maximize your IPO’s viability.