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The IPO process 3.1 Process timeline J.P. Morgan (Investment Banking) The process of planning and executing an IPO is time-intensive and, for a domestic issuer, typically takes 14 to 16 weeks from organizational meeting to closing, though the exact time taken can vary widely and depends on market conditions, the complexity of the transaction, the company’s readiness prior to embarking on the IPO process and many other factors. Achieving this timeline requires significant preparatory efforts, in particular to ensure the required financial disclosure is available on a timely basis such that drafting of the principal document can proceed as outlined below. There is typically a large team of professionals involved in the IPO process, including the company, legal counsel, auditors and underwriters, among others. The key workstreams are drafting of the registration statement, due diligence (business, financial and legal), preparation of transaction documentation and other marketing materials (e.g., roadshow presentation). The preparation process can be broken down into the following key stages: The pre-filing phase (a) Week 1 Organizational meeting: All key members of the IPO working group meet to discuss the specifics of the offering, including timing, key tasks, and roles and responsibilities for the IPO process. The meeting is typically held at the company’s headquarters or company counsel’s offices, with 20 to 40 people attending. The lead bookrunner(s) typically prepares an organizational book that details all of the aforementioned items. This meeting is usually combined with a presentation from the company’s CEO, CFO, general counsel and key divisional managers on the company’s business. All together, these meetings typically last a day, at the end of which the working group will have a good understanding of the company’s business, financial position and any key issues affecting it, as well as a clarity on the critical path for execution of the IPO. (b) Weeks 2 to 5: Drafting: The principal document that is created when going public is a registration statement and has the dual purpose of registering the securities with the SEC and acting as a marketing document when selling the IPO to investors. The drafting of the registration statement is a collaborative process among the company, the underwriters (typically led by the lead bookrunner(s)), the company’s and underwriters’ counsel and the company’s auditors. The company relies heavily on the bookrunners to craft an appropriate marketing story and consults closely with its auditors when preparing the financial disclosure. Due diligence: The purpose of due diligence is twofold: first, and most importantly, to ensure the accuracy, completeness and truthfulness of the company’s registration statement; second, to provide the underwriters (and certain other offering participants) with a so-called due diligence defense against liability arising in connection with any material misstatements and/or omissions in the offering disclosure. Due diligence is conducted by all members of the working group and is iterative in nature, continuing right up to closing of the IPO, though it should be substantially complete by the time of the initial filing of the registration statement. The underwriters and their counsel will conduct extensive business and financial due diligence on the company, focusing primarily on the company’s operations, procedures, financials (both historical and prospective), competitive position and business strategy, as well as on the management team and key board members. As part of this process, the underwriters will have detailed discussions with the company’s management, customers, suppliers and any other relevant parties, and will review agreements with and documentation relating to any of the aforementioned parties, workforce, creditors or other related parties. Counsel to the company and the underwriters will also conduct legal due diligence, which is primarily documentary in nature and focuses on verifying the company’s legal records, material contracts, any litigation and compliance with local, state and federal laws and regulations. Legal and other documentation: In addition to assisting with drafting the registration statement and participating in due diligence, the company’s and underwriter’s counsel will work with the underwriters, the company and the auditors to draft and complete the following documentation: • underwriting agreement; • lock-up agreements for existing shareholders (typically signed before filing of the registration statement); • legal opinions; • comfort letter; and • press releases announcing the filing, launch and pricing of the transaction. Determine listing venue: The company, with the assistance of the bookrunners, should determine whether it is eligible to list on the NYSE or another exchange, hold discussions with the exchange and reserve a ticker symbol. (c) Week 6 Valuation update with the investment bank: It is prudent to have relatively frequent valuation updates with the bookrunners, particularly as market conditions shift and as the company achieves key milestones throughout the IPO process. This ensures that all parties are regularly updated and aligned on valuation expectations and avoids any mismatch as the company progresses toward launch of the IPO. Legal and other documentation: Continue drafting and negotiating legal documentation and comfort letter. Syndicate equity research analyst briefing: At some point prior to the initial SEC filing, it is customary for the company to provide a briefing to the underwriters’ equity research analysts. This will typically be a modified form of the company presentation delivered by management to the working group at the beginning of the IPO process. It will be followed by an iterative process between the research analysts and management as they develop their understanding of the company, its business model, and their views on valuation. 32 NYSE IPO Guide
The IPO process Underwriter internal approvals: Prior to filing the initial draft registration statement with the SEC, or otherwise making public the underwriters’ names in connection with the IPO, the underwriters will typically need to clear internal committees. This involves presenting the company to an internal committee, a review of the draft registration statement disclosure and discussion of any issues that came to light during the due diligence process. SEC submission of draft registration statement: To commence the process of SEC review of the registration statement, the company must file it with the SEC, together with various exhibits. Under the JOBS Act, emerging growth companies have the option of making a confidential submission, as opposed to a public filing, and many EGCs take advantage of this option, as discussed further in Section 4.3. Companies that elect confidential review must make a public filing of the draft registration statement at least 21 days before the start of the IPO roadshow. The waiting period (d) Weeks 7 to 8 Roadshow presentation and marketing strategy: While the IPO working group awaits comments from the SEC on the draft registration statement, it is prudent to further develop the marketing story for the IPO roadshow. The lead bookrunner(s) will generally spearhead this process, while working closely with the company to create a short, detailed slide deck to be shown to investors during the roadshow. This presentation is typically 20 to 30 slides in length and details the offering, the company’s products and services, key selling points, industry trends and growth opportunities, competitive positioning and financial performance. For EGCs, as discussed further in Section 4.3, another topic of discussion with the bookrunners is whether to take advantage of the JOBS Act provisions allowing them to “test the waters” prior to launch of the IPO, in order to assess potential demand for the offering and identify and address any issues that investors may raise. Legal and other documentation: Continue drafting and negotiating legal documentation and comfort letter Agree on offering structure: The company, in conjunction with the lead bookrunner(s), should determine the appropriate proceeds to raise in the IPO in order to be well capitalized for 18 to 24 months after the IPO, taking into account its strategic goals, as outlined in the registration statement. In addition, the company should approach its shareholders and discuss the extent to which they may wish to sell part of their holdings in the IPO. In doing so, the company will be mindful of any IPO participation rights granted to shareholders under registration rights and other similar agreements that may exist with existing stock holders. (e) Weeks 9 to 13 Receiving and addressing SEC comments: The SEC takes approximately 30 days to complete its initial review of the draft registration statement, at which point it will respond to the company and its counsel via a formal comment letter in which it makes certain observations on the company’s draft disclosure and invites the company to address these by making revisions and filing a series of amendments, to its draft registration statement. The initial comment letter is the beginning of an iterative process with the SEC, which typically requires at least three amendments and can last up to six weeks, depending on a number of variables. Legal and other documentation: Continue drafting and negotiating legal documentation and comfort letter. Roadshow presentation: Continue refining the roadshow presentation and rehearsals with CEO/CFO and any other members of the roadshow team. Valuation and price range discussions: Continue periodic valuation discussions with the underwriters and formulate a preliminary price range to be provided confidentially to the SEC as an indication of where the offering price range will be. This often involves a share split or consolidation to achieve the desired range. Agree on marketing strategy: The company and the bookrunners should decide which regions and specific cities to visit on the IPO roadshow, the length of the roadshow and which investors to target as potential buyers of the IPO. The marketing/execution phase (f) Week 14 Registration statement and other documentation: Having cleared all SEC comments and amended the registration statement to reflect any stock split and the offering price range, finalize all other documentation, including underwriting agreement, comfort letter and launch press release. Roadshow preparation: Finalize the roadshow presentation, hold roadshow rehearsals and make all logistical preparations for roadshow launch. Finalize legal documentation. (g) Weeks 15 and 16 Launch IPO: File an amendment to the registration statement with price range (the so-called “red herring”): Conduct management presentations to the bookrunners’ equity sales forces, and commence the roadshow, consisting of between 8 and 12 days of investor meetings. Pricing and closing: Having built a book of demand, the bookrunners will agree on the offering price with the company and shareholders and, having executed the underwriting agreement, proceed to allocate the IPO to investors. The following day, the company begins publicly trading on the NYSE, rings the opening bell and hosts other key marketing events associated with being a public company. Three business days later, the IPO closes, at which point stock is delivered to investors against payment of the offering price, and various legal opinions are delivered by counsel. (h) Aftermarket Depending on the trading performance of the stock, the underwriters may either intervene to “stabilize” the stock in order to smooth out short-term volatility (in the case of a stock that falls below issue price post-IPO) or exercise the greenshoe (in the case of a stock that trades comfortably above issue price post-IPO). 3.2 SEC registration Cleary Gottlieb Steen & Hamilton LLP Before undertaking an IPO, the company must file a registration statement with the SEC, and it must be declared effective NYSE IPO Guide 33
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8 Managing risk NYSE IPO Guide 83
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Appendices NYSE IPO Guide 109
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Contributor profiles NYSE IPO Guide
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Contributor profiles (SEC) register
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Contributor profiles The Children
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Contributor profiles KPMG 345 Park
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Contributor profiles Morrow & Co.,
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