Taking a company public, also known as an initial public offering (IPO), involves several steps. It’s a complex and expensive process that can take many months or even years to complete. Here are the basic steps:
- Decide to Go Public: The first step is deciding that going public is the best strategic move for the company. This decision is usually made by the company’s board of directors.
- Choose an Investment Bank: The company then chooses an investment bank to underwrite the IPO. The underwriter will conduct due diligence, help determine the offering price, and buy the shares to resell to the public.
- Prepare for Due Diligence: The company needs to prepare detailed financial statements and gather information about its operations, management, and risks. This information will be used by the underwriters and regulators during the due diligence process.
- File Registration Statement with SEC: The company must prepare a registration statement to file with the U.S. Securities and Exchange Commission (SEC). This document includes the company’s financial statements, information about its business, and details of the planned IPO.
- SEC Review: The SEC reviews the registration statement and can ask for additional information or changes. Once the SEC is satisfied with the registration statement, it will declare it “effective”, and the company can proceed with the IPO.
- Pricing the IPO: The underwriters and company management determine the final offering price for the IPO based on demand from investors, the company’s financials, and current market conditions.
- Going Public: The shares are sold on the chosen stock exchange, and the company is officially “public”. The money raised from selling shares goes to the company, minus the fees paid to the underwriters.
- Post-IPO: After going public, the company has new obligations, such as disclosing financial results and other significant developments to shareholders. The company’s performance on the stock market can influence its reputation, ability to raise future capital, and even its business operations.
It’s important to note that not all public offerings are the same. Some companies may choose a direct listing instead of a traditional IPO, which allows them to go public without an underwriter. Others may go public through a merger with a special purpose acquisition company (SPAC). Each of these methods has its own process and considerations.