How to launch an Initial Public Offering
Business Leader has put together a report on all you need to know about launching an Initial Public Offering (IPO).
An IPO, or stock launch, is a public offering in which shares of a business are sold to institutional investors (entity or pool of multiple people) and sometimes retail investors (individual).
Before a listing, an IPO is typically underwritten by one or more investment banks, who then arrange for the shares to be listed on one or more stock exchanges around the world. This is known as floating or going public, and results in a privately-owned company being transformed into a public company.
The reason for launching an IPO is primarily to raise new equity capital in order to grow the business.
IPO procedures are governed by different laws in different countries, but in the UK, the Financial Conduct Authority (FCA) reviews and approves prospectuses and operates the listing regime. But how do companies get listed?
Step-by-step guide to an IPO
Although it can vary depending on where a company decides to list, there are some key similarities that business owners need to be aware of.
Companies with the goal of listing often announce their intentions a considerable time before the IPO date. In the ‘pre-IPO’ stage, the business will have typically grown to have a value of more than $1bn, and have scaled with a smaller number of shareholders including early investors, alongside professional investors such as venture capitalists, seed funding specialists or angel investors.
According to Hargreaves Lansdown, there are five parts to launching a successful IPO.
- The intention to Float – the company announces to the stock market that they wish to float the company by way of an IPO or new issue.
- Preparation of Prospectus – the company will then prepare and release a Prospectus. This aims to be the definitive document relating to the launch and will describe the offer in detail. Applications to buy shares during an IPO or new issue should always be made on the basis of the information contained in the company’s Prospectus and any supplementary documentation the company may produce, as the Directors have to give a full and fair description of the business including the risks.
- Sales of shares – applications for the shares begin. The IPO will be open for a fixed time known as the Offer Period.
- Offer Period closes – applications will be finalised and investors allocated the shares based on the size of their application and any relevant scaling.
- Shares admitted to the stock market – also known as the secondary market, the shares can be bought or sold during normal market hours. Once on the secondary market the price of the shares can rise and fall.
Other parts of the process you should consider include selecting the right banking institution to manage the listing – as well as aiding in the due diligence and fillings. They will also provide the underwriting services, pricing, and produce the engagement letter that is a vital part of the process.
How to tell if your IPO is a success?
There are several key metrics that are used to measure whether an IPO is a success. The first is market capitalisation. This is the stock price and the total number of a company’s outstanding shares.
An IPO can be considered a success if the difference between the offering price and the market capitalisation of the listed business is less than 20% within 20 days of the launch date.
All you need to know about floating your business – Interview with LSE
Business Leader spoke to London Stock Exchange Group (LSE), to give businesses all they need to know about London’s international public markets.
What are the benefits of going public?
Joining a public market such as AIM or the Main Market can both help businesses to grow and enhance their profile. A listing on London Stock Exchange gives companies access to deep pools of capital, both at IPO and for the long-term.
What is the difference between AIM and the Main Market?
AIM is the world’s leading growth market, traditionally home to ambitious companies looking to raise long-term equity finance. Over its 24-year history, more than 3,800 companies have raised nearly £110bn through AIM, with 60% of this being through further issuances. The Main Market generally admits larger, more established companies and offers the potential to be included in indices such as the FTSE 100, FTSE 250 and others. Companies on AIM may decide to proceed to the Main Market once they reach a certain size and stage of development.
What does a company need to float?
Becoming a public company is a significant decision. Companies should have a well-defined business plan, a demonstrable track record and a clear equity story. Planning is essential to a successful float and can take 6–12 months. Companies will need to appoint advisors for the IPO, a law firm, broker, and others depending on the market they are planning to join. To meet the requirements of the market, companies along with their advisors will look at whether they have the right corporate structure, governance and controls.
What IPOs could happen in 2022?
With a new year, comes new opportunities for businesses across the UK (and beyond) to kickstart their growth plans for 2022. However, some companies will be making headline news in the year ahead, by launching their initial public offering (IPO). Last year, around the world, IPOs raised a record $594bn – with companies like Deliveroo, Bumble, Roblox, Coinbase, Robinhood and Rivian all making the headlines. With 2022 rumoured to eclipse last years total raised through IPOs, Business Leader has profiled four companies you should keep an eye on.
Instacart is one of the most popular grocery delivery and pick-up services in the US and Canada. The company has built a complex logistics system that includes agreements with more than 400 retailers covering more than 30,000 stores. The network is available to around 85% of households in the US and 80% in Canada, and can be accessed via a website and mobile app. It is also important to note that customers can get fresh food delivered directly to their door in less than two hours. Instacart was last valued at $39bn and at IPO could be valued at around $50bn. Many experts expect its flotation to take place in early 2022, after it was initially announced to launch late last year.
Databricks is a data and AI start-up that has developed software to quickly process big data and prepare it for analysis. The company has a client base of over 5000 customers, including high-profile clients such as CVS Health, Comcast, Condé Nast, and Nationwide. The company raised $1bn in its latest funding round in early February 2021 and is currently valued at $28bn. Databricks investors include Fidelity Management and Research, Whale Rock Capital Management, Amazon, Salesforce Ventures, Andreessen Horowitz, Capital G (Google), and Microsoft. According to recent data, the company could be valued between $35-50bn as its IPO launches. Industry experts are comparing its potential launch to Snowflake Inc, who in 2020, launched the larges software IPO in history.
Starlink is a part of Elon Musk’s SpaceX business and is known for providing high-speed internet access via its extensive range of satellites, totalling more than 1,000. There have been increased rumours in recent months of an IPO happening this year, after Musk tweeted a cryptic response to speculation that SpaceX would always remain private last summer. He later stated that he would consider taking Starlink public once cash flow becomes ‘more predictable’. Currently, the company has revenues of around $30bn, and a reported valuation of more than $42bn. In recent years, they have been received regulatory approval in the UK, Australia, Greece, and Germany – with over 10,000 users. More nations are set to sign up this year.
Speculation is growing that British online neo-bank Monzo will be launching its IPO in London later this year. In 2020, the company reported revenues of £67.2bn, giving it a valuation of more than £2bn – therefore achieving ‘unicorn’ status. However, company CEO TS Anil did announce last year that he believed the company was undervalued and that Manzo would be worth a lot more following its listing. Following this, in December 2021, the company raised over $500m funding – increasing its valuation to $4.5bn. Although no official launch date has been revealed, Monzo is set to follow in the footsteps of Wise, Revolut and Stripe. Founded six years ago, the challenger bank has already made plans to expand into the US.
What is the latest IPO trend set to dominate the UK?
A growing trend within the global M&A industry has been the increased interest around Special Purpose Acquisition Companies – also known as SPACs. In short, they are organisations that have no commercial operations, and they are formed purely to raise capital through an initial public offering (IPO) with the aim of acquiring or merging with an established business.
Over the past few years, they have become increasingly popular in the USA, and have started spreading across the globe. But how will they impact global markets in the years ahead? Business Leader investigates.
To read the full report, click here.
1 in 4 financial services CEOs want to IPO their business
When thinking about the future of their business, a quarter of business leaders in the financial services sector want to become listed and go through an IPO, according to ECI Partners’ latest Growth Characteristics research. Whereas, nearly a third (30%) want to sell a stake in their business to an investor, such as private equity, and 19% want to continue running the business indefinitely.
ECI, the growth-focused private equity firm, surveyed over 500 fast-growth SME business leaders as part of its Growth Characteristics report to understand what makes a successful CEO, and to discover their current challenges and growth plans.
Despite clarity over the ultimate goal for their business, many CEOs’ leadership plans are not necessarily set in stone. Nearly two-thirds (62%) of financial services business leaders don’t currently have a succession plan in place.
Michael Butler, Partner at ECI Partners comments on the findings: “Regardless of the businesses’ end goal, creating a business roadmap which includes a succession plan, is essential. Effective succession planning gives the business direction beyond the CEO, encourages fresh ideas and the progression of other staff in the business.”
When thinking about the future, over three quarters (76%) of business leaders are more optimistic about the future than they were this time last year.
Additionally, CEOs are also aware of the changing business climate and how the pandemic has placed greater focus on doing the right thing, with 86% stating that social purpose now informs at least part of their business strategy.
Michael continues: “The last couple of years have been turbulent for the financial services sector, and as the dust settles, it’s important that their business plans and strategy are aligned to the world we now operate in. Beyond social purpose, the pandemic has also shone a light on people’s working practices and placed greater importance on businesses culture, as such it’s essential that plans are made with this in mind, and people are placed at the core of their proposition.”