A Deeper Look Inside the IPO Process

IPO

In 2018, the median IPO deal in the United States was $108 million. Globally, Hong Kong leads the ranks as the country with most company IPOs. Taking a company public is arguably one of the most challenging and laborious processes in the business world. Dependent upon the size of the company, the IPO process can take as little as 4 months and as long as 12 months. There are a number of reasons that a company would choose to go public. Some of the most common reasons are as follows:

  1. Securing funds through access to capital markets
  2. Raising money to increase hiring rates or acquire other companies
  3. Bolstering the company’s reputation
  4. Establishing employee benefit and stock options plans
  5. Pressure from the company’s original investors
  6. Decreasing and diversifying investor holdings
  7. Giving shareholders liquidity
  8. Using new cash flow to facilitate additional research or infrastructure

Most companies will cite a combination of the above as their reasoning to go public. No matter what the reason may be, IPOs are not for the faint of heart. The process is time-consuming, grueling, and complex.

While the benefits associated with IPOs are abundant, there are certainly drawbacks worth nothing as well. First and foremost, the process is expensive. Things such as accounting fees, legal fees, underwriting fees, and opportunity cost for management’s time are costly. In addition, once a company goes public they are often subjected to scrutiny, a loss of privacy, and additional regulatory requirements. Finally, pressure from shareholders to see adequate growth and results can be strenuous on the company’s executive team.

While there is no exact path to going public, there are a number of steps that a company typically goes through during the IPO process. They include the following:

  1. Get approval from the company’s board of directors
  2. Assemble your IPO team
  3. Start the process of going through all of your financial statements
  4. Find a lead investment bank
  5. Conduct due diligence and regulatory filings
  6. SEC review
  7. Decide the offer price
  8. After-market stabilization
  9. Following the “quiet period”, transition to market competition

The IPO process looks somewhat different for every single company. At the heart of any IPO, is the desire to grow and transition. Being a private company might be all that is in the cards for some, while others strive tirelessly to grow to the point of an IPO. Regardless of those objectives, a strong number of IPOs means a flourishing economy and a healthy stock market.

At Ellrich, Neal, Smith & Stohlman, P.A., our trained valuation analysts have the qualifications and experience to value a business for a variety of purposes, including the purchase or sale of a business, divorce of an owner, estate and gift matters, business and contractual disputes, eminent domain condemnations, and to assist in financing. Contact our Miami or Palm Beach Gardens at your earliest convenience for more information!