How Does a Company Offer IPO?
Once company finalizes its intent to raise funds through an IPO, there is a fairly
elaborate process that includes regulatory permissions, marketing and a back office
process involved in the actual IPO listing. Once a company is listed, there is a
major onus on the company to give a good performance as only that will keep the
prices buoyant and the investors interested.
Understand the Regulatory Process for an IPO
The regulatory process begins with the initial approval of the SEBI and then the
filing of the Draft Red Herring Prospectus (DRHP). The DRHP is more like a statement
of intent given out by the company and any objections that SEBI has will be communicated
to the company and to the investment bankers. Once the regulator is satisfied, the
approval is given and then the onus is on the issuer and the BRLM to go through
the other required processes. Once the IPO is completed and the basis of allotment
is finalized, the basis has to be finally approved by the exchanges.
Key Aspects Regarding Managing the Actual IPO
Marketing the IPO
The most critical part of the IPO is the marketing and selling of the IPO. In fact,
the BRLMs and the issuer do the introductory road shows and meet institutions to
gauge the appetite for the IPO. It is only after this feedback that the actual price
of the IPO or the price band is fixed. It is intended to maximize the subscription
at that price.
The second important aspect of the IPO is the IPO pricing. This is very critical
because it is a trade-off. The company has to get the best possible price in the
market. At the same time, it is also important that they don’t lose out on the investor
appetite. If both these are managed, then the IPO is likely to be negatively impacted.
Fixed price versus book building
Method of the IPO pricing is another important issue. The company can opt for a
fixed price method or for a book built method. In a book built method the price
is discovered scientifically by the process of book building. The method of book
building is a lot more popular now and most of the issues that come out are using
that method only.
Timing the IPO
Timing is again a very aspect of any IPO. You may have a very good story and the
price may be very good but if your IPO is bunched with a lot of other large IPOs
then the response may not be that good. That is because the funds of investors get
distributed over more issues and the response may not be as attractive as you may
want it to be. Also the timing of the listing and market condition at the time of
the issue and listing matters a lot. At least, in the short term, these issues of
timing are quite material.
Lastly, there is the all important aspect of coordination among various facets of
the IPO. There is a legal angle to an IPO, marketing angle, compliance angle and
a procedural angle to the IPO. A successful IPO calls for a seamless coordination
between the BRLM and the issuer in managing marketing, institutional placements,
registry, allotments etc.
Why Road Shows are So Critical to an IPO?
One of the most important aspects of the IPO is the road show. The road show helps
the company to make a statement to the investors and also to gauge appetite of investors
Road shows gauge demand
A road show ahead of an IPO is useful to gauge the appetite for the stock. Normally,
the pricing decision is taken based on this road show. Once the road show is completed,
then the pricing is decided upon. The market strategy for the IPO is also normally
decided upon during the IPO road show that is conducted.
Cover key demand centres
Road shows are normally done in India and across key centres globally. Large issues
normally entail visiting key centres like New York, Boston, London, Singapore and
Hong Kong to gauge global investor appetite and making a sales pitch to them. Normally,
IPOs get commitments for the issue during the IPO road show itself.
Critical for institutional inputs
Road shows offer critical inputs from institutions which can also be used as a key
marketing pitch when it comes to telling the story to retail investors during the