The path to an initial public offering (IPO) can be a lengthy, winding one filled with twists and turns and unforgiving deadlines. Simply gathering, organizing and exchanging information for the initial due diligence process can strain a company’s internal resources, then add on the drafting of the prospectus, creation of financials, SEC Filings, preparation for public reporting, ongoing SOX compliance and so much more. Mitigate the risk and help ensure a smooth road by selecting an experienced team and following tried and true successful IPO best practices. Click here to download the infographic.
We’ll take you through each step on the path to an initial public offering and recommend actions to streamline the process and avoid potentially costly mistakes.
- Decision to IPO
Once the decision is made to embark on an IPO, you need to build strong internal and external teams – and choose wisely. Select experienced partners with proven results helping companies go public. In addition to Company Leadership, the Working Group includes key partners representing Law Firms, Financial Sponsors, Underwriters and Audit Firms. It’s also wise to engage a filing agent like Toppan Merrill who can add significant value to the Working Group with expertise and tools and platforms to help manage the process more efficiently.
Streamline and simplify the information gathering process by selecting a virtual data room, like Datasite®, to serve as a central, secure repository for all the information required for due diligence including financial information, ledgers, business plans, publicity about the company, background on executives, products, patents, etc. Ensure all team members have access to the virtual data room to maximize efficiency. - Preparations and Drafting
Prior to beginning the drafting process, engage the working group to affirm any style requirements such as the Underwriters cover page and the audited financial formatting style.
During this stage you’ll be crafting a complete narrative of the company’s operations, including assets and liabilities, comprehensive financial, tax, legal and IP information, industry insights, market research and customer verification as well as potential shareholder/investor information.
Within the S-1 filing, you’ll be required to disclose any known material weaknesses in compliance with Sarbanes-Oxley (SOX). At its highest level, SOX compliance for newly public companies revolves around compliance with the 11 sections of the Sarbanes-Oxley Act of 2002. Ideally, you would start working through the documentation of your risk and controls at least 12 to 18 months in advance of your SEC Filing to ensure that your Corporate Governance and Internal Controls over financial reporting are effectively operating in advance of becoming a public company (when that functionality is required). Assess the state of internal controls over financial reporting and identify enhancements in the control environment.
To prepare financial and accounting documents, use the Toppan Merrill Bridge™ (Bridge) SaaS platform to establish best practices for creating periodic financial reports and prepare for post-IPO regulatory disclosure. Bridge makes management and updating of financials for SEC filings effective and efficient.
It is also recommended to secure SEC filing codes at this time in preparation for the first filing. Submit Form ID to receive a Central Index Key and Confirmation Code (CIK and CCC) and then fund the account. - Initial Filings
Rely on Toppan Merrill to help guide you on the transfer of filing fees to the SEC. They will also manage the preparation of the HTML EDGAR SEC submission and file it when provided instructions to do so.
The Stock Exchange application should also be filed at this time. Within 3 days of the initial SEC filing, the Underwriter files with FINRA (Financial Industry Regulatory Authority). FINRA’s review of public offering filings provides regulatory guidance on what constitutes fair and reasonable underwriting arrangements. - SEC Response
The SEC will begin its review of the filing and provide Comments to resolve questions, information gaps and concerns. Respond to these information requests via Amendments to the original filing until the SEC is satisfied with responses. - Roadshow Begins
As the SEC review is winding down and key stakeholders are ready to more publicly promote the sale of the Company’s stocks, a roadshow is launched. The “roadshow” or investor meetings begin and the Underwriter markets the offering in advance of the public offering. In addition to the pitch, this entails distributing the “red herring”, (so-called for the large bold disclaimer found on the cover page of the prospectus) conducting meetings with investors and book building. Given the tremendous importance of the Roadshow presentations, create marketing materials to supplement the preliminary Prospectus that tell a compelling investment story. - SEC Filings
As the roadshow is concluded and the team is completing the final steps before the sale of securities begins, final SEC comments need to be resolved and/or additional disclosure needs to be added in a final amendment filing. Executives and Officers of the newly formed public company are required to file initial insider ownership information and any initial public trades by filing SEC Form 3. This process can be tedious and time-consuming for the team focused on the company launch. It can be effectively managed early on by a single point of contact to proactively collect, or in some cases apply for, SEC filing codes for those individuals.
While the newly formed public company has 45 days to make its first quarterly filing, getting mapping done in advance provides more time to review the filing. At this time, you’ll need to set up a financial filing solution and initiate iXBRL mapping to prepare for the first 10-Q filing. Rely on Toppan Merrill to prepare the iXBRL and use Toppan Merrill’s SEC Connect for SEC submissions. - Finalize SEC Review
Rounding the corner on the IPO process, all outstanding SEC comments are resolved and the final amendment is filed with the SEC. The SEC then declares the registration “Effective” and the organization is now officially an IPO. - Pricing
At the close of the market, the Issuer Underwriter prices the transaction. A few days after pricing is set, the IPO closes and the Issuer and selling Stockholders must release their shares to the Underwriters. Once all shares are released, the Institutional Investors who have already purchased shares will get their allocations and public trading will begin on the chosen exchange. - Final Filings
The final SEC filings include Form S-8 and Form 4s (change in ownership, post-IPO) as well as the 424(b) Final Prospectus which includes pricing information and any information related to final pricing. - Life Begins as a Public Company
From here on the company operates as a public company, in accordance with the Securities Exchange Act of 1934. This act governs securities transactions on the secondary market. The organization must execute periodic and interim reporting, produce shareholder communications and proxy statements, and comply with the Sarbanes-Oxley Act of 2002 that mandates practices in financial record keeping and reporting for public companies—for all of which Toppan Merrill provides expertise and services.
Every IPO Journey is Unique — We’re Here to Help
Although these steps are the most common in the path to an IPO, every IPO has its own unique complexities, additional requirements, unexpected delays and barriers. To ensure a smooth journey start by building out strong internal and external teams with trusted advisors that have walked this path many times before. Toppan Merrill has the deep expertise and decades of experience, supported by proven technology, to help to navigate the bumps, barriers and anything else that may come up along the way.
What is the Securities Exchange Act of 1934?
The Securities Exchange Act of 1934 created the Securities and Exchange Commission (SEC) and authorized it to govern the secondary market trading of company securities in the US. Secondary trading is the buying or selling of company securities (stock) typically through brokers or dealers. Often shortened to the Exchange Act of 1934 or the ‘34 Act, this landmark legislation laid the foundation for the financial regulation of public companies listed on stock markets including the New York Stock Exchange, American Stock Exchange and Pacific Stock Exchange.
President Franklin D. Roosevelt first signed the Securities Act of 1933 and the subsequent Securities Exchange Act of 1934 into law in the aftermath of the 1929 stock market crash. The Exchange Act of 1934 gives the SEC broad powers to enforce US federal securities law, but also investigate potential violations such as insider trading, the sale of unregistered stocks, manipulation of market prices and disclosure of fraudulent financial information. The SEC’s consumer protection powers extend to the organizations and individuals participating in the securities markets which would include securities exchanges, brokers and dealers, investment advisors and investment funds. By law and with SEC oversight, consumers and investors have access to public company registration statements, periodic reports among other securities forms through its Electronic Data Gathering Analysis and Retrieval database (EDGAR).
If a company has more than 500 shareholders and more than $10 million in assets, The Exchange Act of 1934 Act requires that it file annual company information with the SEC using Form 10-K as well as quarterly with Form 10-Q. If a company experiences a material event such as a change in leadership or structure, the SEC mandates the filing of Form 8-K to disclose these changes. Forms 10-K, 10-Q, and 8-K must be filed via the SEC’s EDGAR (Electronic Data Gathering, Analysis and Retrieval) system, where they are made publicly available on sec.gov. These periodic reports and annual statements are examined by the SEC to ensure that they are compliant with disclosure requirements and that the American public and investors can make informed decisions about their investment decisions.
The Exchange Act of 1934 also sets forth disclosure requirements in materials used to solicit shareholder votes in annual meetings held for approval of corporate action. The information is captured in proxy materials that must be filed with the SEC in advance of any solicitation. The SEC is charged with ensuring the company has provided all proper and accurate disclosures.
The Exchange Act of 1934 requires disclosure of important information by anyone seeking to acquire more than 5 percent of a company’s securities by direct purchase or tender offer as such an offer could impact control of the public company.
The SEC is limited to seeking civil penalties such as fines and injunctions (barring a person from future roles such as a corporate officer). Depending on the severity or significance of the offense, the Department of Justice can file criminal charges for alleged violations of The Exchange Act of 1934. The largest SEC fine to date was levied on JP Morgan Chase for the selling of mortgage securities by illegal means, leading to the 2012 financial crisis.
