A winning initial public offering (IPO) requires months of working very closely together with many people underwriters, lawyers, accountants, printers, transfer agents and others. They all have crucial roles to play and form the nucleus that will make or break your IPO.
Todays Enable provides you with an overview of the underwriter typically a major investment bank that acts as your agent in offering your securities to the public. The selection of the underwriter will be the most important and toughest task in your quest to become a public company.
Take your time and seek out the best possible underwriter well before you actually need one. In fact, most underwriters want to meet with you before you need them and it is in your best interest to create a relationship with one as early as possible.
Your Underwriter's Role and Responsibilities
Public offerings typically include a syndicate of underwriters led by a lead underwriter. In addition to underwriting services, the underwriter will also act as your advisor and salesperson. This includes advising you as to the best timing for an offering, its size, and the optimal pricing of the transaction.
The main responsibility of the underwriter is to implement the offering in a logical, systematic and organized manner. In doing so, the underwriter provides numerous services including due diligence examination of the issuer, helping determine which market you will go public on, planning and preparing the road show, and negotiations.
The underwriter should also be able to help you put yourself in the best possible light vis-א-vis the investing public. This may include suggestions regarding a restructuring of your company, changing the capital structure, and dealing with potential conflicts of interest. The investment banker must also be able to add value during the preparation of the prospectus.
The underwriter must also be a sales person marketing and selling the offering to create investor demand. He or she must be able to provide research and trading support for your companys stock following the offering. This is crucial in order to maintain investor interest in your company and foster a stable market for its shares.
Reputation Is the Key Criterion
In selecting the underwriter, reputation plays a major role. Look for one that has a very strong repuation in your particular technological field. You must also make sure that they have leading and respected research analysts that understand your particular innovations.
Morevoer, before choosing any underwriter, you must carefully examine his/her pre-existing relationships with your current and future customers, suppliers and competitors.
You must also remember that not all underwriters will be interested in your particular offering. It may be too small, in a less sexy or attractive industry, or it may just be that the underwriter believes that the chances for your success are not worth the risk of underwriting your offering. Keep in mind that the underwriters reputation is based on the success of the offerings he/she is involved in. Underwriters are usually compensated on a success only basis, and they will not want to invest substantial time and effort unless they are reasonably sure that your offering will be successful.
In choosing the underwriter, you must ask around and thoroughly check references. Ask your advisors like lawyers and accountants for recommendations. Also, check with entrepreneurs who have taken their companies public and ask them for recomendations. You must also bluntly ask them about their own underwriter and try to determine both the postive and negative aspects.
Do not be afraid to seek out underwriters because you believe it is too early. If you are working in Internet time you may be going public sooner than you think.
Published by Israel's Business Arena on March 21, 2000.