The IPO cycle, also referred to as Initial Public Offering Cycle, allows private companies to go public and offer the company's shares to the general public for the first time. It highlights a significant milestone in the expansion and growth of a company and enables access to capital along with enhanced credibility and visibility in the market.
Explain The IPO Cycle
The IPO cycle represents the entire series of processes and stages that a private company undergoes for its transformation into a publicly traded entity. The IPO cycle in full form is Initial Public Offering. In the simplest term, the IPO cycle meaning revolves around all the steps involved in taking a company from being owned privately by a particular group of investors to offering the company's shares to the general public with the help of a stock exchange.
A Detailed Understanding Of The IPO Cycle:
A detailed explanation of the various IPO cycle stages is essential to develop a thorough understanding of the IPO cycle. All these IPO cycle phases are listed below in detail.
This represents the very first stage and involves the preparation of the company for IPO through the evaluation and inspection of its financials, estimating and determining the valuation, and selecting underwriters who will assist in the procedure of offering. Moreover, it is also essential for the company to comply with various requirements concerning regulation and engage in multiple activities such as presentations to investors and roadshows.
This marks the second stage, where a registration statement is filed by the company with the concerned regulatory authority. The statement of registration contains detailed information about the financials of the company, risks, operations, and various other disclosures that mark relevance. It also undergoes a review by the regulatory authority to ensure it complies with financial and legal standards.
Book-Building Or Marketing Phase:
Once the statement of registration is approved by the regulatory authority, the company, as well as its underwriters, are involved in marketing efforts for the purpose of generating interest and demand among retail investors and various institutions. This includes the presentation of the opportunity for investment to potential investors and the collection of the indications of interest or bids within a specific price range.
Offering or Subscription Phase:
In this phase, the final offering price is determined based on the demand generated during the book-building phase. Investors to whom the share had been allocated can purchase them at the price that is being offered. The company gets the proceeds from the selling of the shares, which can be further used for numerous purposes such as repayment of debt, expansion and development, and research.
Once the phase of offering is over, the shares of the company are listed on a stock exchange and in the secondary market trading beings. The fluctuation of the stock price occurs as a result of the demand and supply of the market, and the investors are free to buy and sell shares. The company gets access to a broader base of investors, with enhanced liquidity and potential opportunities for acquisitions and growth.
IPO Cycle Broadly Concerns The Following Steps:
Registration by SEBI:
The company intending to go public in India is required to file an application with SEBI ( Security and Exchange Board Of India) for the IPO. The application is then reviewed by SEBI, followed by approval once all the requirements are fulfilled.
Preparation of a Draft Prospectus
Upon receiving SEBI's approval, the company prepares a draft prospectus containing detailed information about the company, its operations, risks, financials and the proposed offering.
The company, with its underwriters, initiates roadshows to promote the IPO. This is aimed at generating interest among potential investors. This involves meetings and presentations with the key stakeholders and institutional investors to showcase the opportunity for investment.
Approval by SEBI
SEBI approves the draft prospectus and ensures that all the disclosure of the necessary information has been done correctly and that the interest of the investors are well-protected.
After consulting with the underwriters for the IPO, the company decides on the price brand. The price band highlights the range within which investors can bid on shares.
With the close of the bidding period, the company, along with its underwriters, evaluate the bid that has been received from the investors. On the basis of the demand and considering various other factors, the investors are allocated the shares.
With the completion of the procedure of allotment, the shares of the company get listed on the stock exchange. This allows the trading of the shares to the secondary market offering liquidity to the shareholders and enabling the discovery of price.
During the bidding period, the bids are placed by investors within a particular price band specified by the company. In this bidding process, retail and institutional investors can participate either through intermediaries or directly.
Therefore, the IPO cycle highlights a significant journey of the company marking its transmutation from a privately held entity to a publicly traded company. The entire process involved in the IPO cycle required careful planning, strategic decision making and compliance with all the regulations. It is a vital mechanism companies use to create shareholder value, realize aspirations and contribute to the dynamic landscape of the global economy.