The IPO process or the Initial Public Offering process means a firm is going public. In IPO, the owner of a company sells a certain portion of shares to the open market. The main reasons to do so are to increase capital and enhance the brand’s visibility. eGeneration Ltd. is one of the companies which is currently processing their IPO.
A Guide To Seven Steps
This is a time-consuming process and is done in seven steps. It is important to follow these steps in the given order for a satisfying outcome.
Step 1: Investment Bank Or Underwriters
The company must select the right investment bank. After all, the bank is going to act as the underwriter and take the whole process forward. The underwriters are experts who play the role of a broker. They work between the company and the public investor.
Step 2: Regulatory Filings And Due Diligence
This part involves all the crucial paperwork.
- Firm Commitment
- Best Efforts Agreement
- Syndicate of Underwriters
- Engagement Letter
- Letter of Intent.
- Red Herring Document
- Underwriting Agreement
The document and all the information need to be thoroughly checked before submitting it to the officials. Otherwise, it can be a huge problem, just like eGeneration IPO had to go through. The Dhaka Stock Exchange was not satisfied with the documents and information they provided. Hence their IPO process is on hold for the time being.
Step 3: Sales Pitch
After all the paperwork is completed, and everything is set, it is time for the sales pitch. The company, along with its underwriter, visit various places to showcase its IPO. They present the to-be-sold shares to different investors to check demand availability. This also helps the underwriter to determine the number of shares that are required to be offered.
Step 4: Pricing
Once the SEC has approved the IPO, an effective date is then set. The day before that date, the company with its underwriter comes up with the number of shares sold and their offer price. The price is the most important factor. It helps to increase the capital of the company.
Step 5: Going Public
The underwriter releases the shares to the open market on the selected date. This is when the IPO finally goes public.
Step 6: Stabilization
The IPO stabilization takes place over a short time, about twenty-five days maximum. During this time, the underwriter is free to influence the price of the share.
Step 7: Transition to Market Competition
The final stage takes place after the twenty-five days of the ‘quiet period.’ This is when the shares are public and not in the hands of the underwriter. Therefore, they lose their control over the shares and take new roles. Mainly, the role of an advisor.
The IPO is a long process but a much-needed one. After all, it benefits the company in so many ways. It helps them to make their brand public and enter the market competition efficiently.