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Decisions, decisions, decisions: Making Good Decisions about Important Issues during Your Company’s IPO

Like building a new house, the pre-IPO process is wrought with decisions. And they come not by the dozen but often by the bushel. This white paper alerts management of companies considering going public of the questions to be faced: some basic, choice of Structures & domicile (pros, cons, why’s wherefores), some a bit more intricate: asset protection, insurance, compensation realignment, committee structure, records and record keeping/monitoring/accessing, “cheap stock” issues, tax. This is like getting a Master’s in IPO management!




Coffee in hand and a desk full of blueprints before you, how did you get into this position? Where did the instruction manual go for all these plans that seem to cascade into confusion? Where were the polite architect and the happy show announcer who claimed all that was necessary was a little creativity and ‘no money down’? The phone rings as all the neighbors proffer suggestions and inquire as to timetables regarding your neatly labeled addition. As if this emerging project could have been kept a secret with the lumbering cement truck recording seismographic readings through the cul-de-sac. You are here; there is no turning back and the choices before you will completely determine the future value of your property and the relationships of the neighbors that you have some degree of fondness for. What can you do but jump in?

Such a frenzied picture is fairly typical of the initial public offering (IPO) decision-making process. The concept began as a fresh and new way to leverage your business and invite others into the company, to raise capital, and to expand assets. No PERT chart could have accurately depicted the content and the rate of pace with which decisions would be required and choices needed. What happened to the next stage of business life cycles? As is the case in any construction, contractors and weather wait for no IPO miser. While the volume of their screams may be reduced to a minor headache, the decisions are critical and a misstep or wrong selection can completely alter everything. This is the time to be introduced to the IPO blueprint in a manner that is systematic, logical and without hype. This white paper will walk you through these important concepts and their necessity in the craftsmanship of both a company and an addition that you can be comfortable with and dare we say proud of for many years to come.

Laying the foundation: the IPO Structure and why

The old adage is never truer than in the process of IPO creation: Build a strong foundation and your structure will last. But what should this foundation consist of? Let us essentially see the framework of this first step as a three-part process.
  1. The purchase of the underwriter. In theory the purchase of the underwriter is the entire portion of stock the issuer is selling as the offer price minus its “spread,” meaning management fees, underwriting fees, and a selling commission.
  2. The stock is essentially repurposed and is resold to the underwriters’ customers – approximately 70% of which are institutional investors including banks, mutual funds, and pension funds. This component essentially ends the underwriters’ immediate commitment, although analyst coverage is continued through review called aftermarket support.
  3. The third step is an IPO investors’ sale of their shares to the public. This is where an offering swings from an understandable controlled, precise deal between issuer and banker to a roller coaster interchange between the owners of the IPO shares and anybody who would like to buy them.


What solidifies this process and ensures the success of the foundation? A very non-construction like comment called, Pre-talk. During the creation of an IPO framing, the bankers spend time reviewing the components of the emerging IPO with each of their major buyers. During these talks, the bankers are able to gauge where they will need to price the IPO.

The concept is to let the IPO investors -- who are typically the customers of the bank’s other financial services -- in on the IPO at a discount to the price at which it will begin trading. All of this is very legal and above board – no pun intended.

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 CAPITAL MARKETS
   Pink Sheets
   OTCBB

 BASIC BUSINESS SAVVY
   Advanced Financial Topics

 GOING PUBLIC
   Steps in the Process
   Requirements of Public Companies
   Tools & Templates
   Specialists

 REPORTING & COMPLIANCE
   Staying in SEC Compliance
   New Sarbanes-Oxley Regulations
   Structuring Your Company
   Tools & Templates

 GETTING FUNDING
   Preparing Your Business
   Finding Investors
   Pitching Investors

 FOREIGN COMPANIES
   Taking a Foreign Company Public

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