Initial Public Offering (IPO)

Underwriters or advisors gauge investor demand and get a better sense of potential investor sentiment regarding valuation.

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Companies must choose an exchange, reserve a symbol, and notify/apply to the exchange and regulators for approval of their intended listing. 

 

Listing Types : 

Traditional IPO - A company works with an investment bank(s) to raise capital. This process involves the investment bank reaching out to interested parties and selling shares at a pre-defined valuation. Underwriters will purchase the equity and sell it to those interested. Pricing is set the week of the IPO and is dependent upon investor demand. Shares commence trading after a public opening auction process.

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Direct Listing - In the late 2010's, an older IPO process regained popularity. In a direct listing, the company raises capital directly to the public by offering their shares at a defined valuation and an opening auction process directly on the exchange, the day the IPO is effective, rather than using financial intermediaries to sell equity into the listing. Both Nasdaq and NYSE provide incentives for choosing this offering structure, however few companies have engaged in a direct listing over the last several years since revival of this process.

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Uplisting - An 'uplisting' involves a company who has shares publicly available for trading on an Over-The-Counter market. These shares cease to exist, and their listing is transferred to a new primary exchange. Often these are simultaneous with a secondary offering (on the new exchange) that acts as the pricing mechanism for their new share structure.

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Dual-Listing - The first day trading on Nasdaq/NYSE may not be the first public investment. Often times, companies will choose to offer equity in the United States to boost valuation or increase investor demand. These listings involve a company listing their shares on an American (or other) exchange while maintaining their listing on a foreign exchange. 

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Exchange Transfer - At times, instead of choosing a dual-listing structure, companies will terminate their equity listing in their domestic market and transfer their primary listing to the United States. Both an exchange transfer and dual-listing set pricing based on the current public valuation in their home market. 

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Filing Types : 

Companies will file an S-1 (S-3 if already reporting company, S-4 if the transaction involves merger/acquisition) or an F-1 (or F-3, F-4, or 20-F) for a foreign based entity.

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Ammendments, 8-K, 6-K or other regulatory filings are required along the way for material updates.

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Investors and regulators must have the opportunity to review these filings and conduct due diligence in order to ensure structure is proper and investors can assign a valuation.

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Fixed-Price / Book Building : 

The traditional IPO process involves an investment bank purchasing the equity offering and selling to interested investors at a valuation determined through the offering process. Investment banks will locate pools of investors and attempt to sell equity. A book building process is different, in that an auction of sorts takes place. The company and their advisors will create a valuation and price bands (lower and upper limit) for a pricing in which they intend to offer shares at. Underwriters/bookrunners will maintain an electronic 'book' where interested parties will place bids to acquire shares.