Once the planning phase of IPO has ended, the first steps can be made towards submitting an application to the chosen stock markets register of companies, announcing the intention to float. This may be the SEC (U.S. Securities and Exchange Commission) or UKLA (United Kingdom Listing Authority).
The process is started with a submission of a Draft Prospectus which includes details of the company and its intent to list on the stock exchange. This information includes;
- Description of the Business and its management
- Information of Industry Trend and risk factors.
- Management Discussions
- Financial Information
- Intend use of proceeds from listing
- Dividend Policy
- Who can currently apply for shares
The drafting of the prospectus document can be a very technical and time-consuming process. Requiring a great deal of time from the whole IPO team because of its complicated nature and technical needs. During this process it’s easy for the timeline to fall behind, it is, therefore, primitive that the team understand the necessary requirements to meet deadlines and stay on schedule.
The Prospectus Draft will need to check to ensure that it backs company performance and its market position. This will include the review of industry comparisons, facility sites, legal documentation, financial reports, tax returns, director information and any other business related documents. This is to ensure that the draft is truthful and accurate before submission to the Registrar of Companies.
Due to the nature of the phase, it is likely alterations will be amended to the Prospectus Draft before its first submission.
A Pathfinder Prospectus or “red herring” is commonly issued, which outlines an indicative price range and the same information as the IPO prospectus. This gives the underwriters an opportunity to understand the current demand for shares. Only the Final Prospectus outlines the finalised details including the price shares will be sold.
Letter of Comments
When the Prospectus Draft is submitted to the registrars of companies, it will be reviewed by various members of staff with finance backgrounds. This may include attorneys, accountants and financial analysts. The registers have 30 days to review the prospectus draft, giving feedback and making comments, from which the draft will need to be altered.
This will follow in a ‘re-submission’, with the possibility of further feedback and comments.
Once the Registrars finds no errors or has any further questions, it will declare the prospectus “effective”, allowing the company to commence with its selling efforts.