Chapter 5—The IPO and the IPO Process

The company has decided go public, management is interviewing potential underwrit- ers and the company is methodically working through pre-IPO considerations and action steps to get ready. But ready for what? What exactly is involved in the process of taking a company from being privately owned by its founders, investors and/or employees to being a company with a public trading market for its stock?

In a nutshell, the IPO process entails the company working with its underwriters andadvisors—primarily company counsel, underwriters’ counsel and the company’s auditors— to:

•prepare a prospectus used for marketing the offering;

•conduct due diligence;

•file the prospectus and related registration statement with the SEC;

•respond to and satisfy the SEC’s comments to the registration statement;

•market the offering on a “road show” to potential investors;

•list the stock on a stock exchange;

•have the SEC declare the registration statement “effective”; and

•price and then close the sale of company stock in the initial public offering.

This chapter provides an overview of the registration process, the due diligence pro- cess, the registration statement and disclosure requirements and stock exchange listing.

During the process, a company must comply with the Securities Act, the Exchange Act and the applicable stock exchange rules. At the same time, the underwriters’ involvement with the IPO must comply with the rules of the Financial Industry Regulatory Authority (“FINRA”) (formerly, the National Association of Securities Dealers, or “NASD”).

Overview of the Registration Process—

the Pre-Filing Period, the Waiting Period, Effectiveness

and the Post-Effective Period

The IPO process centers on the registration of the company’s stock offering with the SEC. The registration process involves three stages: (1) the “pre-filing period”—the pe- riod prior to the initial filing of the registration statement with the SEC; (2) the “waiting period”—the period between the initial filing and the date that the SEC declares the regis- tration statement “effective”; and (3) the “post-effective period”—the period in which the stock can actually be sold to the public.

The Pre-Filing Period

The pre-filing period is the most time intensive (outside of the time management spends on the road show) and the most sensitive to premature public disclosure. During the pre-fil- ing period, the company decides to proceed with an IPO, selects the underwriters, holds an “organizational meeting” (described in more detail in Chapter 7), facilitates due diligence


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