The IPO Issue Process

Abstract

This note covers the institutional process for companies making an initial public offering (IPO) of equity. It focuses on the basic institutional requirements of an underwritten security offering and the role of investment bankers. It is designed to familiarize students with the terminology and institutional practices of an IPO. In addition, it discusses the regulatory changes brought about by passage of the Jumpstart Our Business Startups (JOBS) Act in April 2012 and compares the process before and after the act was implemented. Excerpt UVA-F-1700 Rev. Dec. 4, 2018 The IPO Issue Process An initial public offering (IPO) is a private company's initial issuance of stock to the public, also known as going public. While there may be several reasons to take a company public, the primary purpose of an IPO is usually to raise cash. The cash may be used to expand operations or to pay off debt. Alternatively, an IPO might be part of a process where the company's founder and early investors sell all or part of their interests in the company as part of an exit strategy. Whatever the reasons for considering an IPO, it is a significant event in the life of a company. Before management embarks on an IPO, they should have knowledge of the process of taking a company public. This note covers the basic institutional requirements of an IPO that is done on a firm commitment basis. Firm commitment offers are the predominant way firms choose to go public compared to other methods of issue (e.g., best-efforts offers and auction methods). It reviews the steps of the IPO issue process and the rationale for these long-standing institutional arrangements. The IPO issue process was altered by passage of the Jumpstart Our Business Startups (JOBS) Act in April 2012, which attempted to reduce the regulatory burden and derisk the IPO process for potential first-time issuers. These changes were prompted by concerns about the decline in the number of firms going public in the United States and whether the process itself had become too burdensome and costly for firms. Timeline of IPO . . .