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How Does a Company Offer IPO

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.

IPO pricing
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.

Multi-level coordination
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 IPO.

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