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IPO
IPO, also known as the initial public offering,
is a process by which a privately owned company becomes a public
enterprise. The emanation of IPO is significant for the growth of a
business. Apart from providing immediate capital for financing
various expansion and improvement activities, an IPO also increases
the credibility of the company and provides it requisite exposure to
attract more business opportunities. Furthermore, an IPO helps the
company to catch the attention of the finest management talent
available by providing them some incomparable incentives to work in
a consummate manner for the benefit of the company. In simple words,
an IPO is the most viable means to increase the public valuation of
a small business entity.
Despite its advantages, issuing an IPO is usually
a time-intensive and expensive process. Before initiating the IPO
process, you have to determine whether your company qualifies for it
or not. Many of the biggest players in the industry believe an IPO
is suitable for you only if your company fulfills the following
criteria:
· Has the capability to register
consistent growth at the rate of at least 20 percent for the
next five years.
· Is able to generate annual sales of
$10 to $20 million with the margin of profit at $1 million.
· Has the ability to perform better
than the competitors.
· Deals in products or services that
the public is aware of.
· Can meet all the financial audit
requirements with ease.
· Has an experienced and dedicated
management team to workout as well as maintain the growth.
· And last, but not the least has a
good underwriting team of PR consultants, underwriters,
attorneys, accountants, financial printers and IPO specialists.
Once you have gauged the capability as well as
the capacity of your company, you should set out to find a good
investment banker to kick-start the IPO process. The investment
banker forms the foundation of any IPO process, hence it is
worthwhile to devote a bit of your time to conduct thorough
research. While selecting an investment banker, consider his
reputation, experience in handling projects of similar size,
underwriting experience and arrangements, and record of the quality
of post-service support. As you would be considering bids from
several investment bankers, therefore don’t forget to take into
account the valuation of the company and the share price that the
bidders have recommended.
Apart for the underwriter, you would also require
attorneys to mediate between your company and the Securities and
Exchange Commission (SEC) as well as provide advice on all legal
issues, and accountants to take care of all the financial
formalities. Once, your IPO team is in place, you would have to get
the registration statement prepared in accordance to the guidelines
issued by the SEC. A typical registration statement must contain the
following information:
· Detailed information about the
company.
· All the details about the products
and services that your company provides.
· In depth information about the
officers and directors of the company.
· Details about all the related party
transactions.
· Recognition and classification of
principal shareholders of the company.
· Audited financial statements.
· All the risk factors involved.
· How the company would be using the
capital generated from the IPO.
The SEC may take 30 to 60 days to review
your registration statement. During this period, also called cooling
off period, the SEC would conduct thorough investigation to know the
true capabilities of your company. While the SEC reviews your IPO
proposal, you together with your underwriting team can prepare the
red herring prospectus where you have to spell out details about
your company and all the risk factors involved with your IPO, and
hold road shows to grab the attention of the stock brokers and other
investors. As soon as the SEC approves your registration statement,
the IPO is listed for trading.
The biggest draw of going public via the IPO is
the cost, which can be as high as 25 percent of the company’s
equity. Moreover, during the IPO process, the entire management of
the company will remain immersed in preparing the registration
statement, taking stock of the market and holding road show. As the
result the normal functioning of the company would be drastically
affected. Some other major drawbacks of an IPO are:
· Confidential information of the
company would become public.
· The shareholders would interfere in
day-to-day operations.
· As unanimous approval of board of
directors would be required, it would be difficult to make
decisions quickly and effectively.
· The company would face undue
pressure to perform well in a short term.
· The company would have to bear
unwarranted expenses while trying to fulfill additional
reporting requirements.
If you intend a future merger or acquisition,
then IPO is certainly for you. However, before you head for an IPO
take necessary steps to protect your distinctive products and
services.
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Dominion Worldwide Capital Investment Group, Ltd.
10421 S. Jordan Gateway
Suite 600
South Jordan, UT 84095
801.495.7099 phone
801.495.4071 fax
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