Initial public offering (IPO)

An IPO is a medium to long-term financing option for companies on the organized capital market. As a shareholder in a company, you (the issuer) can use an investment bank or a banking consortium to broker shares in the company to investors. By going public, you can finance the growth of your company and/or strengthen the company’s equity and improve its credit rating.

Prerequisites for an IPO are the corporate form of a stock corporation, a European company (SE) or a partnership limited by shares (KgaA) and proof that the company is ready for the stock market. Let IPO-experienced management consultants support you in making the necessary preparations. This may include converting the company form into a marketable company form, aligning the company with demand on the stock exchange and establishing a business relationship with a suitable investment bank. In the preparation process, the value of your company and a derived issue price for the shares are also determined. The first two steps to successful marketing are therefore to determine a realistic issue price for the shares. Your IPO advisor can manage the entire IPO process.

With a “fact book” describing the company, highlighting its merits and future plans, you or your IPO advisor will approach underwriting departments at various investment banks to solicit bids to conduct the IPO. In this “Beauty Contest” you can compare the services and remuneration offered by commercial banks. Expect to have to pay around 5% of the issue volume to the commercial bank(s) as remuneration for the issuing process.

After a thorough examination of the offers, you select a commercial bank as lead manager and, if necessary, also involve other commercial banks in the IPO.

The issuing departments of the selected commercial banks will have an accounting firm conduct a Due Diligence on your company to be sure they understand the risks and opportunities of your company and make a fair share offering be placed on the stock exchange. The auditor will provide a so-called “Comfort Letter” for which he is personally liable for its correctness and completeness. Do not underestimate the effort and the costs involved.

The so-called “equity story” is based on the findings of the due diligence, with which the investment banks will advertise the shares to be issued on the capital market for investors. The findings from the due diligence also flow into the statutory, legally binding stock exchange prospectus that is published for investors. Financial analyzes that are created independently of the issuing departments within the commercial banks (“Chinese Wall”) lead to research reports that, based on the company’s expected cash flows, lead to recommendations for suitable issue prices for the shares.

In the next step, the investment banks will structure the IPO together with you and your IPO advisor. The transaction structure allows you to determine which investors should receive shares with priority or on preferential terms, such as employees or certain mutual funds. You can also define selling restrictions for existing shareholders and for the management during a certain period after the IPO in order to tie these groups to the company’s success.

Your company is unlikely to be known on the capital market yet, investor relations activities must be started. The transparency requirements require investors to receive all relevant information about your company promptly in the future. Investors must be made aware of your company, especially before going public. An investor relationship page on the company’s website is ideal for this, but also targeted Public Relations work, which usually consists of press releases and press roadshows, and intensive Advertisement. Ideally, the effort for public relations and advertising measures is more than compensated for by higher demand for shares and a higher issue price. The higher inflow of funds from the IPO should exceed the expenses.

The issue price is determined during the “bookbuilding” phase, in which the issuing banks and institutional investors crystallize an indication for a suitable issue price. Before going public, investment banks set an issue price and agree with the issuer that they will hold shares at that price if they do not sell. This agreement is referred to as “underwriting”. This is followed by the subscription period, within which the institutional investors are to make binding purchase commitments (“listing”). After commitments are made for all shares issued, the shares sold are allocated. The funds generated from the sale flow directly to the company and enable a capital increase. The lead manager is obliged to keep the shares tradable after this so-called initial listing. From this point on, the board of directors of the now listed stock corporation takes over the maintenance of the relationship with the shareholders themselves. The importance of this investor relations work should not be underestimated.


What are your challenges?

Restart Dialogue