IPO roadmap: A step-by-step guide to going public

Could IPO be the right next step? This is the key question many companies are considering given the wake of successful IPOs in current times. A successful listing can help a company unlock access to financing to complete a strategic acquisition, create opportunities to expand business into new markets or provide an exit opportunity for investors. In addition, it can also improve perceptions of the business and brand with customers, suppliers and employees.

Timing the market is essential to get the valuation right, and one needs to be prepared in anticipation. Having a clear IPO roadmap with a core team to drive the process goes a long way in making the journey efficient. Leadership sponsor is key to bring the right focus and drive to the IPO process.

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Preparing for an IPO starts with focusing on the following key areas:

• Capital market strategy: The Company should shape the right capital market strategy – develop the equity story, understand existing opportunities to maximise value, market positioning, and objects of the fund raise.
• Tax strategy: There are several tax aspects relevant in the IPO: for e.g. the tax incidence on the selling shareholders (exit tax planning), capital base structuring, ESOP planning, and strategy driven group reorganizations (like, carve out of non-core businesses, flipping of the holding company outside India to an Indian entity, etc.). Many of the activities require careful evaluation of alternatives, execution time and stakeholder management.
• Diligence readiness: Readiness for private fund raise diligence is often mistaken to be sufficient for a capital market diligence. Not enough can be said on how preparing before hand for the expected capital market diligence requirements support in making the IPO process smooth and timely. Often the preparatory work itself brings forth complications that need addressal and have the potential of becoming long-leads.
• Functions: Operating as a listed entity requires heightened compliance with regulations and timely reporting to the various regulators. Assessing the capacity of existing functions (like the finance, HR, legal, IT, Operations, etc.) and identifying gaps in competencies and bandwidth is key to setting up the right team across functions. One cannot ignore the people angle here while building organizational strength through this process.
• Governance framework: Preparing for the expected corporate governance framework as a listed company may entail identifying the right board and committee composition, implementing incremental policies as required by the SEBI and other applicable regulations, and developing a framework for enhancing transparency in operations. Some of the changes may bring about cultural shift in the ways of working.
• Financial reporting: Financial reporting complexities arise due to increased frequency in reporting to the market and auditor’s responsibility to review/ audit such numbers. Time spent on developing an efficient financial reporting systems and processes to close books with reliable and auditable numbers contribute greatly in meeting such requirements.

Following are the broad steps involved in the IPO process:

• Appointing the right intermediaries: investment bankers and counsels play a significant role in the process. Selecting the ones who understand the company’s business, the investors and the market is key for the success of the IPO.
• Drafting of the offer document (DRHP) and the related diligence activities: The contents of the DRHP is highly regulated by SEBI regulations and circulars, guidance issued by the exchanges and international regulations, as applicable. Information included in the DRHP is subject to intense diligence by various intermediaries. Typical long lead items include: shareholder matters, finalization of objects, transaction documents and audit of financial information. Project management is key to ensure that all the long leads are concluded in a timely manner.
• File the DRHP with SEBI and stock exchanges: Post the diligence concluding to the satisfaction of the bankers and counsels, the DRHP is finalized supported by various declarations, reports, certificates and representations from various parties, and signed transaction documents like the offer agreement, registrar agreement.
• Observations and roadshows: Once the DRHP is filed, it is scrutinized by the exchanges and SEBI. Of course, observations can be raised by public as well. The stock exchanges grant their approval upon satisfactory responses to their observations on the document. After few iterations, SEBI shares the final observations letter. The DRHP can be updated and filed within twelve months from that date. In parallel, the Company does roadshows with prospective investors.
• Filing of updated offer document: The DRHP, updated for the observations from the regulators and updated financial information is filed with SEBI. The document is referred to as the updated DRHP (UDRHP). This is reviewed and approved by SEBI which paves the way for the next step of filing the Red Herring Prospectus (RHP).
• Final step of issue opening and subscription: The dates of issue open and close is mentioned in the RHP which is followed by an ad for the price band. Issue is kept open for three working days. Issue close is followed by the allotment of shares, credit to the investors demat accounts over the next two days. From the third working day the stock trading commences on the stock exchanges.

The IPO is a one-time event for a company and set up greater opportunities for scaling up, transparency and building stakeholder value. Preparing for this event in advance is time well spent.

Moneycontrol Journalists are not involved in creation of this article.