The IPO Process Explained: A Step-By-Step Guide to Going Public

Your Initial Public Offering (IPO) will be a transformational moment. The sale of shares will, in theory, attract investment, build liquidity, increase market visibility, and ultimately drive your business forward.

However, the path to a successful IPO isn’t guaranteed. The IPO process will likely be one of the most challenging moments in your company’s history, with administrative and regulatory burdens to consider, not to mention the pressure on your finance team to adapt quickly. Add to that the unique challenges presented by foreseeable market volatility, and companies have an even stronger incentive to get proactive about IPO readiness. By tackling potential gaps and preparing now, you can ensure you’re ready to move confidently once markets stabilise.

If you’re considering your path to public ownership, in the early stages of planning your transformation, or even asking “how does an IPO work?”, it’s critical that you understand the challenges of the process ahead.

To that end, we’ve put together a guide to every stage of the process.

1) Preparing for your IPO

IPO Readiness Analysis

Public ownership requires companies to demonstrate strong financial health, operational maturing and a high level of regulatory compliance. With that in mind, accounting teams should first conduct an IPO readiness analysis in order to identify gaps in their financial reporting processes, their governance infrastructure, and their internal controls systems. 

Key IPO readiness priorities will include: 

• Tracking financial performance and sustainability
• Meeting reporting standards (such as IFRS or US GAAP)
• Ensuring the strength of internal control systems
• Gauging market conditions and investor sentiment
• Developing an IPO roadmap

Creating a Timeline and Forming an IPO Team

The duration of your pre-IPO process will depend on company readiness and the prevailing market conditions. In some cases, it could take years to become a public company. With that in mind, you’ll need to establish a clear timeline as a way to organize your IPO team, and gauge progress towards meeting IPO requirements.

Your IPO team will also factor into the efficiency of your preparations. Your team should include specialists in IPO finance and regulatory compliance, along with legal and accounting experts.

While you may need to recruit new talent to steer your IPO preparation process, it can often make more sense to bias your team composition to existing employees who can bring knowledge of company history, and may have experience working together across recent projects. 

Developing the Equity Story and Investment Argumentation

Your equity story should emphasize your company's growth potential, the competitive advantages it holds, and its ongoing financial strength. The equity story should support your argument to investors, and include key data, such as:

• Your business model and drivers of revenue
• Upcoming market opportunities 
• Previous financial performance and future projections
• Employee expertise and corporate governance record

2) Regulatory and Compliance Requirements

Preparation of Financial Reports

Public companies must adhere to more stringent financial reporting standards than their private counterparts. 

With that in mind, accountants must understand how to correctly prepare financial statements under the International Financial Reporting Standards (IFRS), the US Generally Accepted Accounting Principles (GAAP), or local GAAP standards. Similarly, CFOs and company leadership should work to:

• Ensure accurate and transparent financial reporting
• Implement robust internal control mechanisms
• Conduct historical financial audits for at least three years

Preparation of the Registration Document and Prospectus

You’ll need to develop a prospectus to communicate information to prospective investors prior to your IPO. 

Your prospectus is one of the core documents required for an IPO, and should include comprehensive details about the company, its financial history, potential risks, and future investment potential. That means it should include:

• An overview of your business and highlights of its financial performance
• How your company will use the capital raised by the IPO. 
• Risk factors for the IPO
• Company corporate governance structures
• Necessary legal and regulatory disclosures

Communication with Supervisory Authorities and Handling Queries

Companies must liaise with regulatory bodies in preparation for their IPO. In the United States for example, that means communicating with the Securities and Exchange Commission (SEC). In Europe, communication requirements vary by jurisdiction: in the DACH region, for example, it’s the European Securities and Markets Authority (ESMA) 

Strong communication with the relevant regulators may help companies address administrative roadblocks and smooth the path to IPO approval. 

3) Marketing & Roadshow

Organization of Investor Presentations and Roadshows

Investor roadshows provide opportunities for companies to pitch their investment case to potential investors when preparing for an IPO. Roadshow activities may include one-on-one meetings with institutional investors, public presentations, Q&A sessions, and showcases of financial projections and growth plans

Determination of the IPO Price Range and Final Pricing

You’ll need to set a price for your company’s shares prior to the IPO. In order to do that you’ll have to engage with investment banks and engage underwriters prior to the IPO stock exchange listing. These organizations will analyze demand from investors in order to set a competitive price for your shares. 

A number of factors may influence share pricing, including:

• Market conditions
• Industry trends
• Prices of shares for similar companies
• Investor demand

4) Execution of the IPO

Conclusion of Underwriting Agreements

Your underwriters will perform a number of critical tasks at the pre IPO and post IPO phases. These include: 

• Structuring the offering: Underwriters advise on the number of shares that your company will issue, the price range, or those shares, and the overall capital structure.
• Due diligence and regulatory filings: As part of their structuring role, underwriters will perform their own due diligence, and help prepare document filings — such as the S-1 form in the US.
• Organize roadshows: Underwriters will help organize investor roadshows in order to support marketing and promotion of the IPO.
• Underwriting and risk management: Prior to the IPO, underwriters will commit to purchasing shares at an agreed-upon price — which is also known as a “firm commitment”. Alternatively, they will commit to selling shares on a best-effort basis, which, in the context of a firm commitment, will entail underwriters taking on the risk of unsold shares. 
• Post IPO stabilization: Although typically an optional service, underwriters may engage in price stabilization by buying back shares, post IPO, in order to prevent excessive volatility. Underwriters may offer a ‘greenshoe option’ which allows them to sell additional shares if demand is sufficiently high. 

Allocation of Shares and Start of Trading

Once the share price has been finalized, all shares are allocated to institutional and retail investors. 

On the day of the IPO the following events take place: 

• Shares are listed and begin trading on a public stock exchange.
• Market stabilisation measures, including underwriter activities to stimulate demand for shares. 
• Investor relations efforts.

5) After the IPO: New Obligations as a Listed Company

With shares being traded on a stock exchange, companies must maintain their focus on meeting reporting standards and regulatory compliance expectations. Failure to do so may incur fines and negatively affect share price. 

Key post-IP responsibilities include: 

• Implementing quarterly and annual reporting schedules. 
• Disclosure of material events to shareholders. 
• Ongoing compliance with the relevant government regulations. 

Communication with shareholders is also a priority, and companies should consider how to strengthen the following aspects of their investor relations program:

• Maintaining clear communication channels with shareholders. 
• Handling investor enquiries
• Holding regular earnings calls
• Managing market expectations

6) Summarized Overview of the IPO Process

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The IPO readiness process involves the following key milestones: 

Step 1: Selection of the Underwriter/Investment Bank

Step 2: Due Diligence & Results

Step 3: Pricing

Step 4: Stabilization

Step 5: Transition to Market Competition

7) Metrics for Assessing a Successful IPO Process

It may be difficult to assess the success of an IPO in the hours following the public launch. However, a number of key metrics can help companies understand their position at the end of the first trading day, and in the days following. These include:

• The performance of shares on the first trading day. 
• The amount of capital raised in comparison to initial projections. 
• Investor interest in shares and mentions on social media platforms. 
• The company’s post-IPO compliance and reporting performance. 

8) How Much Time Does the IPO Process Take?

While the average IPO process takes between 6 to 9 months, the process can extend to years depending on a range of company-specific factors. These include:

• Market conditions
• Investor demand
• Regulatory approval 
• Company reporting performance
• Internal control readiness

9) What Costs Can Be Expected During an IPO?

The main costs involved in the IPO process are associated with:

• Underwriting fees
• Legal fees
• IPO accounting fees
• Regulatory fees
• Marketing and roadshow expenses
• Printing costs for necessary documentation

Underwriting fees represent the single biggest cost of IPO preparation. The fee will be taken from gross IPO proceeds at a rate of around 4% to 7% depending on the specifics of the arrangement. 

10) The Role of Special Purpose Acquisition Company (SPAC) and Reverse Takeover

An IPO isn’t the only route to public ownership. Companies may instead opt to go public through a Special Purpose Acquisition Company (SPAC) or a reverse takeover:

• SPAC: A SPAC is a shell company that is created for the specific purpose of raising capital through an IPO in order to then acquire a private company. While a SPAC may offer a faster route to public ownership, uncertainty over ownership details can sometimes deter investors.
• Reverse Takeover: In a reverse takeover, a private firm merges with an existing public company in order to bypass the traditional IPO process.

Achieve IPO Success with FloQast

The path to public ownership is a transformative journey requiring meticulous preparation and execution. 

Given the sakes, it makes sense to seek expert support. FloQast has helped companies around the world execute their own IPOs successfully, leveraging a suite of advanced financial tools to navigate regulatory complexities, optimize reporting, and achieve long-term post-IPO prosperity. You can take your first step towards public ownership for free: download our IPO readiness checklist or a more detailed sense of the steps you’ll need to take.

If you’re ready to streamline your IPO readiness efforts, and ensure ongoing compliance, get in touch today.