Going About The Initial Public Offering
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by: Adriana Noton
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Word Count: 695
Date: Thu, 7 Oct 2010 Time: 12:49 PM
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When a company chooses to do an initial public offering, it has made a monumental decision. The decision to go public can bring many strategic advantages which can propel the future growth of the company. The pecuniary benefits draw companies to this path. When a company becomes a public company it is able to raise money by selling shares to investors. Typically private companies decide to take this step when they need additional capital and private financing sources are insufficient.
But, this new path has its potential disadvantages that need to be measured. Companies with low revenue streams can fail. Shares can sell below their market value in this offering. There are additional regulatory and procedural demands. Long range goals may be sacrificed for short ones with investors demanding a return on their invested capital.
The process of turning a privately owned enterprise into a publicly traded company with an Initial Public Offering imposes rigorous demands. Skilled legal, accounting and underwriting advisory professionals have to be employed. These professionals guide the preparation process. In this preparation process they also help the owners carefully consider the advantages and disadvantages of going public. A thorough understanding of the process is acquired with the aid of these advisors. A business plan is strategized. This business plan is followed by strategic management of the process so that the company goes to market at the right window of market opportunity. Timing is a key factor in making the moment of market entry the most productive. Typically the process of realizing this plan can take around 3 months or a 100 days to complete.
With the challenging IPO marketing conditions in the United States, American companies are seeking foreign alternatives. The proximity of Canada, the strength of the Canadian economy and sound stock exchanges, make the decision of a Canadian public offering increasingly common for certain companies. In Canada, the Toronto TSX and TSX Venture Exchange are dominant. The Venture exchange is a draw for the smaller budding companies. These exchanges also impose less burdensome requirements on companies than American counterparts. The Canadian market is also more friendly to trading of smaller company shares.
Going Public in Canada
The process of going public requires hiring an outside counsel with specialization in securities law. This counsel will guide the company in this undertaking. The counsel will draft the prospectus for the offering. This is a key document that contains key details investors will need. It is required that the prospectus provide complete and truthful disclosure of materials facts and comply with relevant laws and policies.
Once the prospectus has been prepared, the lawyer files the prospectus, supporting documents and applicable fees on behalf of the company with the applicable provincial securities regulator. The regulator then issues a preliminary filing receipt, which enables the company to solicit interest from potential investors. After examination of the filed material, the provincial securities regulator comments on the disclosure in the prospectus. Once the comments have been dealt with and investor interest has been gauged, a final prospectus is filed with the regulator. A receipt of acceptance is issued thereafter.
Once in possession of the final filing receipt, the company can start selling its shares and list with a stock exchange. The share sale is managed by agents or underwriters of the securities. The agents or underwriters will be compensated with discount on share price, an option to purchase shares at a future time, by payment of commission, or a combination thereof. The public company is thereafter responsible for maintaining the accuracy of its public record. This entails keeping investors up to date and making necessary filings of its reporting material with provincial regulators, the company registrar and stock exchanges which list the company stock.
Listing on Canadian Stock Exchanges
After the securities regulator issues the final filing receipt, a listing application can be filed with an exchange. However, in order to list certain requirements must be net. This require knowledge of pertinent laws, policies, rules and bylaws. Again, the skilled professionals will aid this final step in the offering process.
About the Author
Taking a business public is a big step for most companies. An Initial Public Offering (IPO) is a good way to raise capital based on an IPO valuation. Navigating the IPO process and determining How to IPO in Canada should be left to the Canadian IPO professionals.
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