The process to go public via initial public offering (IPO) or Direct Public Offering (DPO) follows a prescribed path. While some elements can be handled simultaneously, there are a number of parts that must be done sequentially. As a result, it will often take between six and nine months for a private company to go public.
We have highlighted the major time elements to provide a basic understanding of the process.
1. The financial audit:
Completing the financial audits is perhaps the most time consuming part of the IPO process. The actual timeframe will largely depend on the current state of your financial books and records. If your firm is organized, has internally generated income statements, balance sheets and statements of cash flow – with notations, you should be in pretty good shape. If your books and records are already prepared by a CPA, reviewed by an accounting firm or audited – that is best. Generally, it will take about 30 days for a start-up to be audited, while it can take 60-120+ days for a large operating business to be audited.
2. Preparation of the registration statement:
Preparing the registration statement to be filed with the SEC requires a complete review of all corporate and financial books, records and documents. The better organized companies are able to provide all of the necessary documents upon request. The review itself can take a few days to few weeks. Once complete, the registration statement can be drafted normally within two to eight weeks. Usually, the registration statement is done before the financial audits. Once the financial audits are complete, they are integrated into the registration statement and filed with the SEC.
3. The SEC review process:
Once the registration statement is filed with the Securities and Exchange Commission, the review and comment phase follows a certain path. Generally, the SEC will review the initial filings and will respond with comments in approximately 30 days. At that point, the company and its advisors are responsible for addressing each of the comments. This could take several hours to several days, depending on the nature of the comments. Once the response is completed, a revised registration statement is filed with the SEC. The review and comment process continues until the SEC is satisfied. This normally takes between 60 days and 120 days, but could last materially longer – depending on the company and its advisors.
3. The stock exchange review process:
Each of the stock exchanges have a different review process. Generally, there are no stock exchange concerns if you satisfy all of the SEC requirements. However, the stock exchanges will look at different factors, including the number of shareholders, amount of capital invested and the relationship between and among all shareholders. One of their primary issues is to ensure that no individual or group controls the ‘public-float’. The review and comment process with the stock exchange is similar to that of the SEC. It can last between two weeks and three months, depending on the company and its advisors.
If handled properly, it should take an average company between six and nine months to go public via an initial public offering (IPO) or direct public offering (DPO) – if it is coordinated and managed properly.
It is very important to hire knowledgeable, experienced and qualified professional advisors to keep each of the parties involved in a going-public transaction on track and on budget.
Joel Arberman is the Managing Member of Public Financial Services, LLC. We help private companies through the process of becoming publicly traded via an initial public offering or direct public offering. Learn more at www.PublicFinancial.com