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IPO Process – A Guide to the Steps in Initial Public Offerings

Are you considering an IPO for your business? Taking your company public via an initial public offering is a significant milestone in a business’s evolution. An IPO can be – as consultant and IPO experts PwC says – a ‘transformational event’ for an organisation.

But preparing for an IPO can also be a complex process. There are a number of steps you need to take before you’re ready for your share offering. What planning do you need to do? What information needs to be prepared, what regulations need to be followed and what other elements do you need to consider?

What is an IPO?

An initial public offering (IPO) is the process of offering shares in a private corporation (a firm held under private ownership) to the public in a new stock issuance. In the words of ig.com, it is ‘the first sale of stock issued by a company. In other words, it’s when a business decides to start selling its shares to the public’.

Pre-IPO, a company is ‘private’ – that is, owned by a limited number of investors or shareholders. Once it has been through an IPO, the business is publicly-listed on a recognised stock exchange.

There are clear incentives for an IPO; by raising capital from public investors, businesses have money to expand; to invest in premises, people or R&I; and contribute to any other capital investments that support business growth. Anyone who has invested in the company pre-IPO is typically rewarded with share premiums.

The company decides where it is going to launch the IPO – for the purposes of this blog, we will focus on UK listings – and how many shares it wants to offer. Then an investment bank is engaged to suggest an initial price for these shares, based on predicted demand. There are then specific steps, set out in UK regulation that a business must take to prepare itself for the listing.

The IPO Process in the UK

Even before you register for a listing, there is a significant amount of pre-work needed for an IPO. After selecting an investment bank, a business must go through certain due diligence and filings before deciding on pricing and marketing the listing.

The Financial Conduct Authority has a set of Listing Rules; compulsory standards for any company wishing to register for its shares or securities to be made public. Among other things, the listing rules cover issues like executive pay, compliance with the UK Corporate Governance Code, and the need for the company’s securities to be admitted to trading by a recognised investment exchange (‘RIE’), such as the London Stock Exchange.

With a few exceptions, every company applying to trade its securities on a UK Regulated Market must prepare a prospectus. The FCA’s Prospectus Rules mandate the information the prospectus needs to include, and it has to be approved by the FCA prior to publication.

The steps involved in a UK initial public offering

As we’ve touched on above, there are a number of stages when you’re planning for an IPO:

1. Select your professional advisers, who will include your investment bank, legal advisers; underwriting managers and brokers. All of your advisers will need access to key data – financial, other performance and compliance data, corporate information – in order to perform due diligence in advance of your listing.
2. Among other things, you need to gather full company data and relevant legal information on your directors, which is then reviewed for accuracy by your legal advisers.
3. Prepare your prospectus. This is your IPO ‘shop window’ – alongside required data, like the company’s financials, it’s where you set out your drivers for going public and, importantly, details of the offer itself. Your prospectus enables you to engage with potential investors – something that’s more important than ever in a COVID-19 world, where travel bans and social distancing prevent face-to-face investor meetings. Your prospectus needs to be professional, compliant and compelling.
4. Send your prospectus, along with an eligibility letter, to the FCA so that it can be reviewed and approved.
5. Publish your prospectus and begin the marketing process for your IPO, sharing information with prospective investors and other stakeholders.

The role of technology in smoothing the IPO process

Whether you need to share pre-IPO data and transaction documentation with your advisers, or engage with potential investors via virtual roadshows, technology can play a key role in today’s IPOs.

But in a virtual world, security is more important than ever; corporate and investor information needs to be hosted highly securely, as well as in a user-friendly way that enables all users, even those more familiar with in-person investor engagement.

Look out for a solution where data is encrypted in transit as well as at rest. Granular  permission-based access will also ensure security and integrity, and reduces the risk of data and regulatory breaches.

By reducing the need for physical delivery of printed documents, sharing IPO information online means that environmental performance is improved, and business continuity can be maintained, even in an unpredictable world. Some solutions offer intelligent document tracking, allowing pre-IPO companies to identify engaged readers and nurture those most interested, even when they can’t meet in person.

If you’re looking for a technology solution to pre-IPO communications, ensuring you engage an experienced provider is essential – ideally one that can continue to offer support with your new obligations post-listing, like the need to provide annual reports.

Engage, Perivan’s online investor platform, is built on award-winning virtual data room technology. It enables pre-IPO companies to securely share documents in real time, view readership analytics and potential investor engagement and, as a result, smooth the path to public listings. To learn more about Engage’s market-leading capabilities, and find out how it could accelerate your investor and shareholder communication, visit our website.