LAST MONTH, WE ENDED OUR DISCUSsion about preparing for an initial public offering (IPO) by talking about the process of selecting an investment banking firm. Choosing the right firm for the size of your transaction is important.
Underwriting fees on an IPO are typically in the range of 6 percent of the overall dollar volume issued. An offering of $100 million of stock to the public is considered substantial enough for a large firm, but interest may wane in a $50 million transaction if you attempt to include more than one co-manager (another investment banking firm) in the transaction. Co-managers are additional investment banking firms hired by the company to assist the lead manager in the equity offering. Of course, co-managers share in the fees.
The next hurdle is finding a banker with expertise in your sector. In a perfect world, not only would the investment banker who is responsible for due diligence and assisting in drafting of the S-1 have an understanding of your industry, but there would be industry knowledge in the sales force and the research department as well. An understanding of your company and its comparables will make a firm more effective in selling your deal. Prior experience with IPOs and other equity offerings similar to yours will enhance the probability of success for your IPO. Lastly, you need to get a comfort level that the firm--and not just the investment banker calling on you--really wants the business and believes it can get the IPO done successfully.
Next, you will need to choose company counsel. Often, a company can continue to use a firm that it has been using for other corporate matters; however, the choice will normally need to be approved by your underwriters. Your investment banking firm will want you to choose a law firm with a lot of experience in public equity offerings. An experienced law firm will add to the credibility of your offering.
Keep in mind that company counsel will be responsible for the drafting of the S-1 and turning around the document each time there is a new draft. A law firm with enough staff dedicated to your transaction is critical to the success of your IPO.
An organizational meeting is typically held at the company's offices. All parties should be in attendance: company management, the lead investment banking firm and any co-managing firms, company counsel, lawyers representing the investment bankers (underwriters counsel) and the company's auditors. The purpose of the meeting...