Key Players in an Initial Public Offering

A company's underwriting team consists of a law firm, an accounting firm, an investment banker, and company executives. One or more of the members of your team may already be in place. It's more likely, however, that you will need to reconsider your existing relationships or establish new ones that will serve you well throughout the initial public offering (IPO) process.

You will be spending a lot of time with the team members throughout the IPO process and for some time after the underwriting. Accordingly, you should appoint qualified team members with whom you work easily and are comfortable. The following materials are intended to give you some things to consider in selecting your IPO team.

The Role of Company Executives

Before selecting the team to take a company public, the top executives of the company must commit themselves to take on the responsibility and dedicate the time necessary to take the company public and maintain it as a public company after the underwriting. The company's Chief Executive Officer (CEO) and other advisers will play a key role in establishing the team and will have to make crucial decisions throughout the process based on the input of the other team members.

The company's executives should, in anticipation of going public, address certain "housekeeping issues," such as establishing or reviewing internal controls, reviewing the company's bylaws and stock option plans, and reviewing the company's financials. The company should also consider implementing corporate communication policies, establishing investor and public relations programs, and developing standard annual and quarterly financial statements in the level of detail required by the SEC.

The Role of the Lawyer

It is important that you choose a law firm that has experience in taking companies public. The attorneys must be familiar with the underwriting process, the rules and regulations of the SEC and state securities commissions, and stock markets. An experienced attorney can also help to avoid delays in the prospectus approval process by ensuring that all of the filings are made on a timely basis and by anticipating potential objections of regulatory agencies and addressing them in advance.

It is also important that your attorney have knowledge surrounding the industry in which you compete. Such knowledge will assist legal counsel in drafting the sections of the prospectus describing the business and the industry risks.

The Role of the Investment Bank

Prospective public companies differ in many ways, according to the size of their offerings, their ages, and the extent of their operations. Likewise, there are large and small investment banking firms, some of whom are full-service and some of whom specialize in particular geographical regions or particular industries. It is important that you select an investment bank that is a good fit for your company's stage in its life cycle and objectives.

The following factors should be considered in selecting an investment bank:

  • Interest Level - You must assess your investment bank's level of genuine interest in your company. You must be certain that the investment bank you select will give your IPO the amount of attention it deserves and continue to demonstrate a long-term interest in your company.
  • Experience - The investment bank you select should have experience in assembling IPOs, and preferably have underwritten IPOs of the size contemplated. By virtue of its experience base, the investment banker should be able to assist you in properly structuring the offering to meet your financial and strategic objectives.
  • Sales Capability - The ability of your investment bank to sell your company's stock will affect the initial success of the IPO, later market performance, and long-term results. The investment bank should be able to arrange appropriate syndicates to reach potential investors it cannot reach directly.
  • Ability to Make the Market - Your investment bank should be willing to serve as a market maker for your company's stock, as should other members of the selling syndicate.
  • Knowledge of the Industry - Your investment banker will be better able to work on your behalf if it has a strong knowledge of the industry in which your company competes.
  • Research and Analysis - It is helpful if your investment bank has a strong research department and assigns an analyst to follow your company. The analyst's periodic research reports about your company will in turn increase your company's visibility with investors and potential business suitors.

The Role of the Accounting Firm

It is usually advisable for a company about to go public to select a national accounting firm that is a member of the American Institute of Certified Public Accountants. The reputation and status of your accounting firm as a national accounting firm will give your audited financial statements increased credibility with investors. It is also important that your accounting firm be conversant with the guidelines of the Financial Accounting Standards Board in general and as applicable to your particular industry.

Also, your accounting firm should be familiar with strategies of emerging companies, such as incentive stock option compensation arrangements, and the proper accounting treatment thereof. Finally, your accountants should be able to assist you in preparing and timely filing the necessary SEC filings.

Choosing the Right Lawyer

If your company is planning to go public, it is critical that you hire an experienced lawyer who has the skills and knowledge to guide you through this complicated process. Contact a business and commercial law attorney today to learn more.

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