The IPO Process
For private companies in the United States , the first issue of securities to the public is referred to as an Initial Public Offering (IPO). IPO's are extremely speculative and rarely do they result in large gains for investors. However, since capital is often needed to grow a private company and values of companies are best determined in the marketplace, IPO's continue to be used as a way for growing private companies.
IPO's are often one of the hottest topics in financial management. Behind the glamour and the glitz of Initial Public Offerings (IPO's) there is a tremendous amount of hard work and personal sacrifice. IPO's require a core group of highly skilled professionals who must literally work around-the-clock for one year. Therefore, one of the first steps to a successful IPO is the formation of a seasoned, experienced team of professionals who will make the IPO happen. You must recruit the best possible people you can find - there is no time to supervise inexperienced MBA's fresh out-of-school.
Once an IPO team (Investment Banker, Legal Council, SEC Expert, Outside Auditor, etc.) has been formed, you can establish a plan for the IPO Process. A basic timeline for an IPO will usually consist of:
Month 12: Recruit new management to run the public company - CEO, CFO, etc. Start compiling the financial information.
Month 11: Start due diligence work - worthless assets are written off, inconsistencies with GAAP are resolved, etc.
Month 10: Start drafting the prospectus. Coordinate the collection of data to minimize duplicative efforts.
Month 9: Establish a board of directors for the newly formed public company.
Month 8: Draft three-year historical financial statements.
Month 7: Circulate draft prospectus for comments.
Month 6: Establish transition contracts for services and products that will now be provided to the newly formed public company. Some new contracts will be needed, such as independent audits of financial statements.
Month 5: Finalize historical financial statements. Start preparing interim (stub) financial statements for current period.
Month 4: Finalize pro forma and interim financial statements. Make revisions to draft prospectus.
Month 3: Convene new board of directors. Audit of interim financials should be complete.
Month 2: Outside auditors opinion is issued. Membership with stock exchange is complete.
Month 1: File prospectus with SEC (Securities Exchange Commission). Issue press release and sell the company to investors.
Before the IPO Process is complete, it is essential to implement all of the necessary controls, procedures, and systems that will now be required within "public life." Staff changes must be made, new financial systems tested, functions like human resources must be managed, etc. The entire IPO process is much more involved than most people realize. A great IPO team and proper planning are the key to a smooth IPO process.
Before considering an IPO, remember some of the key disadvantages. Once public, your company will be operating in a fish tank, much more visible to outsiders. This will require servicing investors, the SEC, and other interested parties. And don't forget you will have to pay at least $ 500,000 per year in accounting and director liability insurance fees. Going public has got to fit with your strategic plan for growth if you expect the benefits to outweigh the costs. Don't overlook the single biggest source of money, investments made by other companies in emerging, high-growth companies. For many companies, the IPO process is a grueling and wrenching process that fails to meet expectations. Planning well in advance is the key to a successful IPO.
Written by: Matt H. Evans, CPA, CMA, CFM | Email: email@example.com | Phone: 1-877-807-8756