Initial Public Offering (IPO) is a transition of a company from a privately held company to a publicly owned company. In addition to giving investors the chance to be part of the growth story, an IPO gives businesses the vital funding they need for growth and expansion. However, getting to the IPO follows a set SEBI-established process that requires planning and compliance with the law.
Discover the complete IPO process that a company follows when going public. You will also learn how to increase chances of IPO allotment by understanding what is subscription rate in IPO.
Understanding the IPO Preparation Process
Here is a complete IPO preparation process that a company follows when going public:
1. Evaluating Readiness for an IPO
To evaluate readiness, companies must first assess their financial performance, market position, and growth prospects. Here are the key factors a company follows for effective IPO preparation:
- Stable Revenue Streams: Companies show that they have and are steadily expanding their revenues to encourage potential investors.
- Profitability: A company shows to be profitable or has the potential to become profitable in the future.
- Strong Management Team: An experienced management team with demonstrated leadership can go a long way in building investor confidence.
2. Choosing the Right Underwriters
Active involvement of underwriters in the IPO process is important as they assist in setting the IPO and flotation of the shares to the public. The company usually chooses an investment bank that has knowledge in their specific sector and has carried out the IPO in the past.
- Underwriting: They help in fixing the IPO price and issuing it to the public investors at the right price.
- Marketing the IPO: Underwriters help develop interest among the investors by promoting the IPO via road shows.
- Guidance and Expertise: Offering information on when it is optimal to enter a market, at what price, and the conditions prevailing in the market.
3. Preparing Financial Statements and Regulatory Filings
One of the most critical aspects of IPO preparation is ensuring that the company’s financial statements are in order.
- Prospectus Preparation: The company prepares a prospectus, which contains descriptions of the company and its operations, financial situation, risk factors, and the IPO purpose.
- Audited Financial Statements: For the period required by the regulatory authority, the application is accompanied by audited financial statements for the previous three years for transparency and reliability.
4. Structuring the IPO
Deciding how to structure the IPO is another crucial step. This involves determining:
- Number of Shares to Issue: The company determines the exact number of shares to list in the market and the proportion of shares that are to be sold among many investors.
- Pricing the Shares: The offer price is considered the initial price for each share that depends on the company’s value, the state in the stock market, and the investors’ interest.
- Share Allocation: This is where the shares are distributed among different categories of investors.
Knowing how to increase chances of IPO allotment is important here as it helps you ensure successful IPO allocation.
5. Conducting a Roadshow
A roadshow consists of several meetings with potential buyers of securities and is usually held by the managers of the company along with underwriters. It is a chance to create demand and establish how much the public is willing to invest in the company’s shares. In the road shows, the company presents a comprehensive report about the running of the organization, the financial performance, and probable expansion to convince the investors to invest in the shares.
6. Going Public
Once the roadshow is complete and the company has assessed investor interest, the final pricing and share allocation are determined.
- Pricing the IPO: Fix the final price of the security after assessing the demand during the roadshow and current market conditions.
- Listing on the Stock Exchange(s): The company’s stock floats on the market on either BSE or NSE, and the shares are available for trading.
What is Subscription Rate in IPO?
Knowing the latest IPO Subscription is critical for the investors since it affects the ultimate pricing and distribution of shares. The amount of demand for the shares being offered in an IPO is indicated by the subscription rate. It is computed by dividing the total number of shares offered in the initial public offering (IPO) by the number of shares that investors have applied for.
A high subscription rate frequently results in oversubscription when demand exceeds supply. On the other hand, a low subscription rate can be a sign of little interest.
Conclusion
IPO is a long and challenging process, which involves careful planning. Looking at the IPO process in detail, companies will be able to prepare themselves for a smooth transition to the public market. It also plays an essential role in financing and increasing company visibility, which makes this stage an exciting but sometimes problematic period in the development of a company.
