How to fully prepare your company for an IPO?

An initial public offering (IPO) is a landmark event in the graph of any public company. There are various justifications for a company to go public like getting a listing, giving an exit to anchor investors, giving a higher profile to the company etc. But the IPO process is easier spoken about than managed. There is a massive coordination of legal, secretarial, procedural and marketing efforts that is required to make an IPO a success. For a company committed to making a success of an IPO, the following steps should be extremely useful.

Step 1: Equity is not the only option

If your intent is to raise money for the company or give an exit route to your anchor investors, then IPO is not the only method. You can also do a private placement of shares to institutions or VCs and a public offer is not compulsory. Weigh your options before opting for an IPO. For example, Flipkart got a valuation of $16 billion without ever approaching the IPO markets.

Step 2: Yes, you need to time the IPO too

If you are wondering what is timing the IPO, it is all about market conditions. Ideally, time your IPO when the cycle is just about picking up. You may not get peak valuations but you can look for good post-listing performance which helps build the company’s image in the stock markets. Timing is also about not opening your IPO when there is a global sell-off or when there are too many mega IPOs bunched. That could impact the demand for the IPO.

Step 3: Put your infrastructure and manpower in place

When your company comes out with an IPO, it is not just a higher profile but also higher scrutiny. You are subjected to exchange regulations pertaining to disclosure, reporting and insider trades. Ensure your preparedness in two ways. Firstly, ensure that your back end systems and compliance is of the highest order. Secondly, you must also ensure that you have top quality manpower in the team as it helps build the right image in front of institutional investors.

Step 4: Gauging the demand and pricing potential of the stock

Once the spadework is done, the next step is to start gauging the demand in the market and also the pricing you can get for the stock. At this point, you need to finalize on your investment bankers who will help you sail through this process. It is the investment banker who will help you to arrive at an appropriate market valuation for the company and decide on the pricing based on retail and institutional expressions of interest.

Step 5: Deliver an effective and focused road show to institutions

It is hard to say if this is the most important part of the process but it is definitely one of the critical aspects of the IPO. The road show is where you meet up with institutional investors like mutual funds, foreign portfolio investors, sovereign funds, portfolio managers to tell them your story. Your pitch needs to be very clear on how you see the company growing in the emerging dispensation. Normally, the success or otherwise of an IPO is largely dependent on this stage as it is the institutions who end up being the opinion leaders.

Step 6: Reaching out to retail investors through the broking network

This is where the broker network comes in really handy. The investment bankers depend on a network of brokers to sell their IPOs to the retail investors. Today a big chunk of the retail portion also gets sold online which means you also need a compelling online proposition. The commissions to brokers and distributors have to be attractive enough to ensure that they find it worthwhile to tell the story to their clients. Retail investors account for 35% of your total capital quota and are a critical audience to reach out to.

Step 7: Managing the analysts and the media

This may appear to be a small step but they have a big impact in influencing the public. Most analysts are also expressing their views on TV and it always helps if the media and the analysts can put out a positive story. Of course, the onus is on you to explain your value proposition and convince them about it. But this particular part should not be ignored as any negative press coverage can have unwanted impact on your IPO.

Step 8: Managing the actual IPO process

This is an uphill task in coordination. Now IPOs are required to complete their allotment within 3 days of the closure of the IPO. During the IPO, the demand graph has to be tracked on a real time basis and appropriately phones need to be worked. Once the IPO closes, there is the challenge of finalizing the basis of allotment and getting the approval of the exchanges and SEBI. This step calls for coordination among registrars, depositories, legal, compliance and the investment banking team.

Step 9: Managing the post-IPO story

Your IPO task does not end with the closure of IPO and the finalization of basis of allotment. You don’t want your stock to fall by 50% within a few days of the listing. That is why it is essential to constantly engage with brokers, investors, analysts even after the IPO to ensure that the real story is told to these opinion makers to avoid unnecessary hiccups in the stock price.

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