4. Choosing Your Investment Banker 27

the prospectus for compliance with SEC regulations. They will normally handle the individual state Blue Sky qualifications of the issue and work closely with the underwriter in drafting the underwriting agreement and the various underwriters/ syndicate selling agreements as well as reviewing all important agreements
into which the company has entered. Last — but not least — the underwriter’s attorney will review all the corporate documents — such as minutes, bylaws, and articles of incorporation — to ensure registration statement disclosures
are accurate.
You may be shaking your head right about now, but don’t! These professionals are involved with your IPO to ensure that you conform to SEC rules and regulations and that your IPO worries are minimized.
The selection process
Selecting the right underwriter for your company is not simple. You may, in fact, be determining the success of your offering then and there, so take your time and be objective. In general, the size of the underwriting firm will mirror the size of the company’s potential offering. Typically, a company will speak to several underwriters first, and this process is really a two-way street. Exercise care in these early interviews to assure the relationship remains balanced. This will prove beneficial, both before and after going public.
Ideally, begin building relationships at least one or two years in advance of your IPO. This may also allow the firm to help raise capital as a “bridge to an IPO,” should the need arise.
An investment banking or underwriter relationship is a lot like a romance. It is often built on well-intended words, can get very intense and, for various reasons, fall apart. When it comes to your IPO, though, you must be in it for the long haul, so keep your eyes wide open.
Before you become “engaged” with a letter of intent, make sure you have done your homework. Although a letter of intent does not necessarily bind either party, it can prevent you from dealing with other underwriters for a stipulated period of time. Thus, do not enter into such a letter until you are confident of your choice.
After you have identified two or three underwriters who are interested in your company, you must then evaluate each, in part, by answering some important questions.
What is the firm’s experience and track record with your company’s industry? Financial printers (e.g., Bowne, R.R. Donnelly, and Merrill Corporation) and independent research firms (e.g., Thomson Financial, IPOMonitor.com, Hoovers.com) provide terrific data on underwriters — including number of deals overall and by sector, percentage increase in value, compensation, etc.
Will the underwriter still provide quality after-market support in an active market?

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