The IPO ProcessThe IPO Process

Why Do Companies Go Public?Why Do Companies Go Public?

• Fund Growth Plans• Currency for M&A• Recap (retire debt)• Liquidity• Employee compensation• Enhanced Image

– Landlords– Creditors/Suppliers– Recruiting/Retention

Underwriter’s CriteriaUnderwriter’s CriteriaCompany CharacteristicsCompany Characteristics

• Growth Prospects

• Predictability of Results

• Management Team

• Historical Track Record – Size;Profitability

• First Mover Advantage

• Sponsorship

Underwriter’s CriteriaUnderwriter’s CriteriaSector/Market CharacteristicsSector/Market Characteristics

• Overall Size

• Growth Rate

• Competitive Dynamics

• Comparable Companies’ Performance

• Institutional Appetite

Underwriter’s CriteriaUnderwriter’s CriteriaIPO Market ConditionsIPO Market Conditions

• Backlog

• Cash Inflows to Mutual Funds

• Deals Pricing Below/Within/Above Range

• Withdrawn vs. Completed Offerings

• Market Performance of Recent IPOs

• Stable Economic Climate

Underwriter’s CriteriaUnderwriter’s CriteriaFirm FocusFirm Focus

• Research Expertise

• Distribution Capabilities

• Corporate Finance Focus

• Chemistry

• Geography (retail offices)

Selecting UnderwritersSelecting Underwriters

• Types of Investment Banks• Lead vs. Co-managers• Distribution Capabilities – Institutional, Retail,

International• After Market Support

– Research– Trading

• Ongoing Corporate Finance Support• Culture of Firm

Lead ManagerLead Manager

• Orchestrates Drafting, Due Diligence, Syndicate, Sales, After Market

• Negotiates Fee Split

• Allocates Shares

• Leads Pricing Call

• 15% Over Allotment Option

Fee StructureFee Structure

• Gross Spread - 7%– Management Fee– Underwriting Fee– Selling Consession

• Jump Ball• Fixed Fee

Pitch BookPitch Book

• Executive Summary• Capital Markets Update• Company Positioning• Valuation• Structure and Timing of IPO Process• Track Record of Investment Bank• Team Members…Commitment• References

Organizational MeetingOrganizational Meeting

• Participants– Company– Company Counsel– Underwriters (two or more)– Underwriter’s Counsel– Company’s Accountants

Organizational MeetingOrganizational Meeting

• Transaction Issues• Due Diligence Interviews• Document Request List• Facility and/or Store Tours• Initial Drafting

– Outline Story– Position the Company

• Schedule of Key Dates

Transactional IssuesTransactional Issues• Size of Offering

– Not More Than a Third– Company vs Secondary Shares– Over Allotment Option– Split

• Lock-ups – Who and How Long• Use of Proceeds

– Debt Retirement– Working Capital– Growth

• Legal– Corporate Status– Quiet Period and Ordinary Course Announcements– Anti-Takeover Provisions

• Misc– Comfort Letter– Selection of Printer– Transfer Agent– Bank Note Company– Reservation of Stock Symbol– Authorized Shares– S-8 for the Employees Option Plan– Directed Stock

Prospectus “Selling Document”Prospectus “Selling Document”

• Five to Eight Drafting Sessions

• File Registration Statement with SEC

• SEC Review (30 days)

• SEC Comments

• File Amendment 1 with SEC

• Print and Distribute “Red Herring”

ProspectusProspectus• Cover• Summary• The Compnay• Risk Factors• Use of Proceeds• Dividend Policy• Capitalization• Dilution• Selected Financial Data• MD&A• The Business• Management and Security Holders• Description of Securities

Registration StatementRegistration Statement

• Prospectus• Exhibits

– Underwriting Agreement– Articles of Incorporation– Opinion of Company Counsel– Stock Option Plan(s); 401(k) Plan– Employment Agreements– Registration Rights Agreements– Material Contracts– Computation of Earnings per Share– Consents

Marketing ProcessMarketing Process

• Marketing Documents– Prospectus– Roadshow Presentation– Insitutional Sales Teach In– Retail Broker Fact Sheet

• Distribution Strategy– Mix of Institutional and Retail– Directed Shares– Syndicate Structure– Roadshow– Share Allocation

Marketing StrategyMarketing Strategy

• Institutions with history of buying, holding and increasing positions

• Institutions which own comparable companies

• Build momentum before NY and Boston

• Create perception of scarcity

The Road ShowThe Road Show

• Two to Three Weeks

• Organized and paid for by underwriter

• Provides info about the company in one-on-one meetings with prospective investors

• Build the book

Going EffectiveGoing Effective

• Acceleration Request

• Pricing the Offering

• Final Prospectus Printed

After Market SupportAfter Market Support

• Timely, Accurate and Insightful Research– Coverage begins after a 25 day quiet period

• Follow up Road Shows

• Investor Conferences

• Active Market Making

Life As a Public CompanyLife As a Public Company

• Reporting– Qs, Ks, Press Releases, Conference Calls, Reg FD,

Forward-looking Statements,• Trading Blackouts• Proxys• BOD Liability• Investor Relations• Secondary Offerings

– Additional Cash– Enhance the Float– Orderly Exit for Large Holders