What to Know Before You IPO
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What to Know Before You IPO

Wednesday, November 24, 2021

So, you're thinking about going public.

"You only get one chance to do this right." — Joe Conte, Head of Corporate Actions Product; Capital Markets, EQ

It's an exciting step for your company, but if you've never been through an initial public offering (IPO) before – and most people haven't – the process can be daunting. Fortunately, you don't have to go through it alone. Your first task is to assemble a team of experts – people who've been through it many times who will guide you through the process.

There's more than one way to IPO

Traditional IPOs have been around for many years. But right now, the special purpose acquisition company (SPAC) IPO market represents more than half of the overall IPO market – however, SPACs don’t come without challenges. The current landscape has only a few agents servicing these instruments. This might have been OK a few years ago when there were a lot fewer SPACs in existence. But unlike most investment instruments, a SPAC usually has several moving parts. A transfer agent is required to support the trading market community and provide efficient and timely responses to investor instructions.

Another ​​opportunity that is available for certain private companies is the ability to go public through a direct listing. In this scenario, a company can register its shares and allow existing holders to sell shares directly into the public market. There are specific requirements that the company must follow in order to utilize this method. In most cases, the company is not looking to raise capital – and is very confident that there will be enough market interest in their shares that a liquid market will develop, based on the number of shares being offered by the selling shareholders. 

Whether you are considering a direct listing, a traditional IPO or entering into a deSPAC (merge the private company with an existing publicly traded SPAC), you'll need the following experts to take your company public:

  • Accounting/advisory firm
  • Legal team
  • Transfer agent
  • Stock exchange (NYSE or NASDAQ)
  • Underwriters (for a traditional IPO)

Who do I call first?

For most companies, the first step is to hire an advisory firm specializing in assisting companies to go public. Not all advisory firms are accounting firms. Most of the major accounting firms provide advisory services in addition to preparing the relevant financial reports. These reports will determine if and when you qualify for an IPO, and on which stock exchange listing criteria is met.

Whether you are pursuing an IPO or a direct listing, your advisory firm will tell you that you'll also need to bring in a legal team that specializes in securities to handle the incorporation process and prepare the S-1 filing, at whichever exchange you've chosen. Additionally, you will need an underwriting/investment firm to raise capital, register your security, set the price and advise you on the best time to go public.

For deSPACs, there are legal experts who will assist on all facets of the transaction. Because multiple existing public securities are involved, there are several moving parts at the closing of a merger transaction, including the restructuring of your private company. Like an IPO, additional capital can be raised through a Private Investment in Public Equity (PIPE) secondary offering.

There are multiple benefits of a deSPAC. This type of transaction can currently move more quickly to market, as there are less regulatory requirements. The private company works together with the existing SPAC management – the SPAC management can assist with the transition into the public market. Unlike an IPO, a deSPAC removes many aspects of uncertainty, as the majority of the capital (if not all) was raised during the initial SPAC IPO.

In all of these scenarios for going public, you will need the assistance of a transfer agent to:

  • Help you gather the records of any pre-IPO registered shares and prepare them for sale, if applicable
  • Escrow the IPO proceeds
  • Process your payment and issue new shares to shareholders after the closing date

What's a transfer agent and how they help?

A transfer agent is a financial services company that manages and keeps track of registered shareholders for companies that issue stock. EQ, for example, is a transfer agent that handles the recordkeeping, reporting and communications for hundreds of U.S. and global corporations and their millions of shareholders around the world.

"After your IPO, your transfer agent remains your partner – potentially for the life of your company."

Once your company goes public, your transfer agent helps you navigate the rules and regulations around securities and shareholders. As a transfer agent, we can be responsible for keeping up-to-date records and handling communications with all registered shareholders, issuing new shares, dividend payments, tax reporting, SEC compliance reporting, unclaimed property reporting – the list goes on and on.

"The transfer agent you choose remains your partner after you IPO, potentially for the life of your company," says Joe Conte, Head of Corporate Actions Product; Capital Markets, EQ. "Choose a transfer agent who will be a good fit for your company long after the IPO.”

Decide early

An IPO can take as long as a year or two to execute, and things get busier as opening day approaches. deSPACs have a shorter timeframe than traditional IPOs, but in both cases, Conte advises companies to choose a transfer agent early in the IPO process.

"It's a relatively small community," he says. "The vetting process shouldn't take that long, but you owe it to yourself and your future shareholders to do your homework."

Given the longevity of the relationship, you'll want to make sure you've found an agent that you trust to handle all your needs as your company grows. There's also another benefit to choosing your transfer agent early in the process.

"We're experts when it comes to the actual transaction part of the IPO," says Conte. "We can help you avoid any issues with the filing, and make sure everybody's on the same page with the details when we’re brought in early. After all, you only get one chance to do this right."

There are hundreds of decisions that need to be made along the journey to becoming a public company. There are experts to advise you at each step along the way. Make sure you understand the value each expert brings, before, during and after your IPO.