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The IPO process
Three elements are the core of every
MD&A:
• Overview—There should be a summary
discussion of the most important
issues affecting the company’s past
and future economic performance.
This discussion is ordinarily at the
beginning, and it varies widely in scope
and breadth.
• Discussion of results of operations—
There must be a detailed comparative
discussion of results for each of the
past three years and any subsequent
interim period. This discussion must
zero in on the major drivers of financial
performance and on the factors that
might cause future results to differ
from those in past periods.
• Discussion of liquidity and capital
resources—There must be a full
discussion of the company’s
liquidity, its funding requirements
and its anticipated sources of funds.
This discussion must focus on the
company’s ongoing requirements more
than on its past performance.
In addition, MD&A must address
several other specifically mandated
disclosures, including a table of
contractual obligations and a discussion
of any off-balance-sheet arrangements.
Other matters: The following additional
topics concerning the company must also
be addressed in the prospectus:
• dividend policy;
• material legal proceedings;
• directors, senior management and
advisors;
• related-party transactions (see
Section 7.5);
• terms of the shares being offered; and
• principal property.
The prospectus will include a description
of the offering, including the proposed use
of proceeds, dilution resulting from the
offering, underwriting arrangements and
selling shareholders, if any.
The requirements of the applicable
SEC form do not limit what should be
included in a prospectus. In addition
to the information expressly required
to be included, a general rule under the
Securities Act requires the company to
include such further material information,
if any, as may be necessary to make the
required statements, in the light of the
circumstances under which they are made,
not misleading.
Industry guides: The SEC requires
special disclosures from companies in
certain industry sectors, as set forth in
five industry guides. In particular, banks
and bank holding companies, casualty
insurers and mining companies must
supply enhanced disclosure subject to the
requirements of the guides. Compiling
the information necessary to comply with
the industry guides can be a substantial
undertaking requiring specialized
expertise.
(b) Drafting process
Drafting logistics: Primary responsibility
for drafting the prospectus, other than
the financial statements, usually falls
to the company’s counsel, working with
company personnel. Underwriters and
their counsel usually draft the plan of
distribution, which describes contractual
and regulatory aspects of the IPO.
Sometimes underwriters and their counsel
also prepare first drafts of sections that
will be key to the marketing effort, such
as the description of the company’s
strengths and strategy that leads off the
summary box.
The core working group reviews,
comments and participates in drafting
sessions that include representatives
of the company and its auditors, the
company’s counsel, the underwriters
and their legal counsel. These drafting
sessions are often conducted at inperson
meetings, though they can also be
held by videoconference or conference
call. In addition to advancing the draft,
the drafting sessions serve as a core
component of the due diligence process
by allowing the core working group to go
meticulously through all content of the
prospectus.
“Benchmarking” is an important
aspect of the drafting process. It involves
determining what comparable issuers
disclose in their prospectuses and periodic
reports and what issues the SEC staff has
raised in comment letters to such issuers.
A review of comparable disclosure and
issues raised in comment letters can help
identify the significant disclosure issues
of relevance to the company’s offering and
may provide a roadmap for how best to
address these issues. Judicious borrowing
from comparable sources provides a
helpful shortcut in what can otherwise be
an arduous process.
After the bulk of the drafting and due
diligence has been conducted, the core
working group distributes a draft of the
registration statement to all directors
and key officers and, depending on the
circumstances, also to selling shareholders
and other key shareholders. The
underwriters should satisfy themselves
that the company has established adequate
procedures for collecting and evaluating
comments on the document from those
persons to whom it has been furnished.
This is particularly important for MD&A
and for any forward-looking statements
that are included in the registration
statement.
Financial printer: A financial printer
should be selected early in the IPO
planning stages. Drafts of the registration
statement will undergo several revisions
over the course of the due diligence
period and as comments from the SEC
staff are incorporated into the document.
At the beginning stages of the process,
the company’s counsel will take the lead
in reflecting any such changes in the
registration statement. However, as the
registration statement nears completion, it
is the role of the financial printer to:
• work with the company to ensure that
the registration statement is formatted
in the way required by the SEC and any
other regulatory institutions;
• process requested changes to the
registration statement until the final
draft;
• prepare EDGAR-suitable versions
of documents to be submitted
electronically to the SEC on the
company’s behalf; and
• print and distribute hard copies of
the preliminary prospectus and final
prospectus.
In choosing a financial printer, several
factors should be considered. An IPO may
require the participation of constituents
in multiple countries and time zones. The
financial printer should have a sufficiently
broad and secure distribution network
NYSE IPO Guide
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