Going Public

Going Public: What It Means and How It Works

What is going public?

Going public is the process by which a privately held company offers its shares to the general public for the first time through an initial public offering (IPO). The IPO converts privately held equity into publicly tradable shares and requires extensive legal, financial, and regulatory preparation.

Key takeaways

• An IPO involves detailed disclosure and regulatory review, primarily through the SEC registration process (Form S-1).
• The company assembles a team — securities lawyers, accountants, and investment banks — to prepare financials, disclosures, and marketing materials.
• Investment banks form a syndicate to sell the offering and coordinate a roadshow to generate investor demand.
• The offering price is set shortly before the registration becomes effective, based on investor interest, comparable offerings, and market conditions.
• Investors should perform additional research because filings may not include every historical detail.

How the IPO process works

Going public is a multi-step process that requires coordination among management, the board, legal counsel, auditors, and underwriters. Below is a concise, commonly followed sequence of steps.

1. Board approval

Management presents a detailed proposal (business plan, financials, objectives) to the board. The board must approve pursuing a public offering.

2. Assemble the IPO team

After approval, the company hires key advisors: securities counsel, an accounting firm, and one or more investment banks (lead underwriter).

3. Review and restate financials

Accountants review historical financial statements (often the prior five years) and restate them as needed to comply with GAAP. Certain private-company transactions may be adjusted or removed.

4. Letter of intent (engagement with an investment bank)

The company and the lead bank agree on terms (fees, offering size, price ranges) via a letter of intent or engagement letter.

5. Draft the prospectus (registration statement)

Counsel and accountants prepare the prospectus — a legal disclosure and selling document that typically includes:
* Business description and market position
* Management structure and compensation
* Related-party transactions and principal shareholders
* Audited financial statements
* Use of proceeds and capitalization
* Dividend policy and dilution effects
* Underwriting agreement summary

6. Due diligence

Underwriters, lawyers, and accountants conduct detailed due diligence on management, operations, suppliers, customers, financial condition, and competitive position. Findings may require prospectus revisions.

7. File preliminary prospectus with regulators

The preliminary prospectus (S-1) is filed with the SEC (and relevant exchange/state regulators). The SEC reviews and usually issues comments requiring clarifications or additional disclosures.

8. Form the syndicate

The lead bank assembles a syndicate of other banks to distribute the offering and broaden investor reach. Syndicate feedback helps refine the price range.

9. Roadshow

Company management and the underwriters present the business to institutional investors and analysts in a roadshow to build interest and collect indications of demand.

10. Finalize the prospectus

Revisions are made per SEC comments. Once the SEC declares the registration effective, the prospectus is finalized and cleared for distribution.

11. Price the offering

Typically the day before sales begin, the lead banker recommends an offer price and final offering size based on investor demand, comparable market activity, roadshow feedback, and company objectives.

12. Print and distribute

An experienced financial printer produces the final prospectus and offering materials compliant with regulatory standards, and shares begin trading once the offering is launched.

Important considerations

• SEC filings are a primary information source, but they may not include every historical detail — investors should conduct additional research.
• Pricing, offering size, and timing depend heavily on market conditions and investor appetite.
• The prospectus discloses dilution, use of proceeds, and material risks; read it carefully before investing.

Summary

Going public transforms a private company into a public one through a structured process of approvals, financial preparation, disclosure, underwriting, and marketing. Success depends on thorough preparation, a coordinated advisory team, and clear communication with regulators and potential investors.