IPO is the process of offering securities of a private company, such as common stock, for sale to the general public. For IPO to be successful, it must be carefully thought out, prepared, and planned. In this article, we will consider the peculiarities of the IPO preparation procedure and the role of the virtual data room in it.
What is IPO?
A company usually thinks about going public when the amount of funding needed to support its activities begins to exceed its ability to attract additional capital on favorable terms in other ways. But the need for capital alone does not always mean that listing securities on the stock exchange is the right choice.
The main purpose of an IPO is third-party funds that can be effectively used as an investment or for business development. The shares, in turn, will cover part of the transaction costs. In addition, access to the IPO provides an opportunity to get highly qualified specialists in the company’s staff. And, finally, the company gets the opportunity to get into the list of the world’s largest stock exchanges, which significantly increases its prestige.
It is also worth noting that, as a result of an IPO, a company receives a fair assessment of its shares, which is important, since, for example, when shares are purchased by a strategic investor, the value of the company, as a rule, is significantly underestimated.
What you should pay attention to when preparing for an IPO?
The listing procedure itself will not take much time. However, for the IPO to become possible and the shares to be placed at a favorable price, a set of preparatory work will need to be completed.
So, there are the following stages in preparing to IPO:
- Building a strong management team
During the period of preparation for the IPO, the company should increase its managerial potential. To achieve the highest valuation of the company, the team must be united, it must have a common vision of the company’s development in the long term.
- Forecasting, budgeting, and evaluation systems
For a successful IPO, making the right budget and using reliable forecasts is crucial, since the market does not allow mistakes in this area, and if the company does not achieve the intended results, this is extremely negative for the market value of its shares.
- Establishment of an audit committee
The Audit Committee plays an important role in ensuring the integrity and transparency of the company’s reporting. According to the expectations of today’s investors, the information published by the company must first be objectively analyzed at the level of the board of directors.
- Due diligence in a virtual data room
Due diligence of financial and economic activities is related to the verification of the company and its management by the company’s legal adviser and underwriters; due diligence may include site visits, analysis of significant agreements and contracts, financial statements, tax returns, minutes of board and shareholder meetings, and various types of analysis of the company and the industry in which it operates. To make the work with documents secure and structured companies use virtual data rooms that provide a secure collaborative workspace and data repository.
- Creation of a positive image of the company in the eyes of the public
A positive image can contribute to the success of an IPO and maintain interest in the stock in the post-IPO market. The company needs to improve its image or form a positive opinion about the company among potential buyers of its shares and persons influencing the decision to purchase shares.