A-Z Glossary of the IPO process

The IPO process can be an intricate process and it can become very easy to become completely lost in the jargon and process involved. Unless you’re working with an expert that will help you to navigate IPO waters, you’re pushing aimlessly against the wind.

We’ve put together an A-Z glossary of IPO terms to help you navigate your way – and understand what you’re up against – should your growth strategy involve going public.

Add-on Offering: When a PLC offers additional shares to the public.

Book Building IPO Type: In this method, underwriters try to establish a price which to offer the IPO, based on interest shown by private investors.Book building involves ‘building orders’ from these investors based on the number of shares requested and at what price they are willing to pay. In this case, interested investors need to registrar an interest before ‘closing of the book’. Potential Investors are not made aware of the price in advance, only an indicative price range is known. Once this happens the underwriter will establish an initial selling price for the offering.

Broker: Individuals or firms who trade securities. Usually trading between buyers and sellers for a fee or commission as they do not own securities. See ‘Selection of an IPO Team‘.

Capitalisation: The total sum of a corporation’s stock. This includes short-term debt, long-term debt, retained earnings and equity securities.

Comment Letter: The Letter written by UKLA or SEC staff that outlines required changes that need to be made to the preliminary prospectus, as well as the inclusion of additional information.

Cooling Off Period: The time period between the filing of the registration statement with the appropriate authorities (i.e. SEC or UKLA) , and the offer of securities. In this time the syndicate and other selling group members distribute tombstone ads announcing the IPO and can send preliminary prospectuses to investors to gain interest.

Corporate Governance: Corporate governance is the framework of rules, practices and procedures a company follows in order to achieve its objectives.

Depositary Receipts: Securities offered by companies who desire to float; each depositary receipt represents a number of a company’s regular shares.

Due Diligence: An Internal investigation carried out by company directors, officers, underwriters, and lawyers to ensure all information in the prospectus is both correct and not misleading.

Effective Date: The date the listing authority authorises the registration statement to be effective and selling of securities can begin.

Exit Strategy: An exit strategy plan is executed by a business in order to liquidate financial assets because objectives not being achieved or financial difficulties that were not expected have burdened the business.

Final Price: The closing price or final price is the price at which the security is traded on trading day.

Final Prospectus: The required documentation to list the company on its chosen stock exchange. Outlining information regarding the company’s operations, financial status, and details of the offering.

Fixed Price IPO Type: In the Fixed Price method shares are offered in advance to the investor. The Issue price is disclosed in the final Prospectus, which will go into detail regarding the variables that justify the price. The Final Price may not be in the draft prospectus as factors that determine the price may change during the period from filing to going public.

Going Public: A company transitioning from privately owned to a publically traded company, through the selling of shares to the public.

Indicative Price: The preliminary price estimated that shares will be sold at.

Initial Public Offering (IPO): A company offering securities for the first time to the public, transitioning from privately owned to a publically traded company.

IPO Team: Lawyers: The IPO process usually involves two groups of lawyers. One would be to advise the company throughout the IPO. Meanwhile the other would focus on the Due Diligence of the Prospectus, review of company documentation and the business itself to identify any legal issues that may arise.

IPO Team: Auditors: Auditors will assist the company’s CFO to review accounts, identifying any issues and prepare the required documentation as part of the necessary financial reports required for admission. Any accounting issues or comments made by the regulatory authority (i.e. SEC or UKLA), will be addressed to by the auditors. Summarising verification procedures and specific financial information of the company.

IPO Team: Printers: The responsibility of the printers is to print the prospectus. The printer should be experienced in printing both registration statements and prospectuses. These documents play a vital role in influencing potential investors and admission authorities. Therefore, it is essential that they look professional and there are no mistakes in the copy.

IPO Team: Listing Sponsor (Main Market – Premium): The Listing Sponsor is required for floatation on the Premium Main Market under UK Listing Rules. They will lead a team of advisers and delegate roles and task to members of the team. They will also assist on an ongoing basis to assist with regulatory duties during transactions.

IPO Team: Key Adviser (Main Market): A Key Adviser is required for a company to list on the High Growth Segment of the Main Market. They are responsible for confirming that the company is eligible for floatation.

IPO Team: Nominated Advisor (Nomad – AIM Only): A Nomad is required as part of floatation of the AIM Market. They need to be part of the initial process as well as during the time the company spends on AIM. The nomad makes the decision whether or not they see the AIM market as the right fit for the company and if so coordinates the listing process. During the process they will advise the company, ensure that it adheres to AIM rules.

IPO Team: Corporate Advisor: The Corporate Adviser is one of the most vital team members necessary for an application to list. They will play a pivotal role in deciding which market best suits the company. They will then formally submit an application on behalf of the company to join the chosen market. An adviser might also advise whether it’s the ‘right-time’ for the company to list, due to market conditions and other economic factors.

IPO Team: Corporate Broker: Acting as the key group to engage with the chosen floating market. The role of the broker is to assess the current market condition and valuing the demand for company shares. Then market them to investors, attracting the necessary demand to meet company expectations for floating. A corporate broker will need to be experienced in the industry of the company.

IPO Team: Reporting Accountant: The reporting accountant’s duty is to review the company’s financial records. These will be used by potential investors towards the end of the IPO process.

IPO Team: Public Relations: The company needs to ensure it hires a credible financial Public Relations firm, that has a proven track record in successfully raising the profile of companies. The PR firm will assist in getting information in the public domain through the necessary channels and build relationships with potential investors and stakeholders. Developing a strategy for the best approach to reach the necessary people in during each stage of the IPO process. Covering the key areas of public relations, communications and marketing. Choosing the right PR firm can be the difference between a well-followed IPO or under subscription of shares.

IPO Team: Registrar: The Registrar is responsible for handling shares and shareholders. Finalising the list of eligible applicants for shares. But also managing invalid applications and refund of orders. It’s the duty of the registrar to collect applications from banks, then process, finalise and dispatch share certificates and refund orders.

IPO Team: Listing Authority: The listing authority is not part of the internal IPO team but still, plays a pivotal role in the process. They are the independent financial institution, that’s associated with the stock exchange the company intends to list on. Their duty is to process the application of the company, checking for errors or misleading information in the company prospectus. Providing the company with comments where to alter and provide clarification on financial and company information.

Investment Banker : A person or firm that underwrites securities, can act as a broker, and provide corporate finance, merger and acquisition services. See ‘Selection of an IPO Team‘.

Letter of Intent : Letter from the underwriter to the company that outlines the terms and conditions of securities being offered.

Listing Application: A company will use a listing application to formally request that its securities be listed on the companies chosen stock exchange.

Lock-Up Period : A period of time where ‘insiders’ cannot sell the shares they own.

Mergers: When two businesses combine into one entity.

Nominated Advisor/NOMAD: A nominated adviser or NOMAD is a firm or company that has approval from the London Stock Exchange (LSE) to list on the Alternative Investment Market (AIM). A NOMAD is a requirement to list on AIM.

Options : Securities offered via means of a contract, which the seller gives the buyer an option to buy a specific number of shares within a set time period.

Oversubscribed: The situation in which a high number of investors who have an interest in buying shares of a company that the amount being offered.

Preliminary Prospectus : The document outlining information about the company issuing stock. Known as a ‘Red Herring’.

Price Amendment: The final amendment to the registration statement will include the offering price which may have been amended and also any changes to financial information of the company.

Price Range: On the preliminary prospectus given to potential investors, it will include a price range. This is a price-per-share range outlining the estimated price range.

Primary Offering: The first issue of stock of a company for public sale from a private company, therefore becoming a publically traded company in the process.

Prospectus: The document required for listing, distributed to potential investors, outlining information on company finances and the offering itself.

Quiet Period: This is the period that the starts on the date of the offering. Usually ends 90 days after the effective date of the registration statement.

Red Herring: Name for the preliminary prospectus which is circulated to potential investors prior to the offering.

Registrar: Usually, a bank that handles issues, transfers and cancels stock certificates.

Reverse Takeover – ‘RTO’ – IPO Type: This method of IPO involves a private company buying enough shares in order to qualify as the controller of the publicly traded company. The private company then exchanges its shares in the public company, this is when the private company complete the reverse takeover and becomes a publicly traded company. One Advantage of this method is the fact the expensive fees associated with the IPO process are not necessary. Avoiding regulatory requirements and longer timescales involved with performing an IPO from the start. But on the contrary, the company does not gain any funds through the transaction. With the name of the company performing the reverse IPO becoming the name of the publicly traded company.

Road Show: As part of the marketing for the securities, brokers and company management will perform presentations outlining the shares offering to potential investors.

SEC: Securities and Exchange Commission, a US federal government agency that’s responsible for regulating and supervising securities.

Stock Exchange: A market where securities are traded. Syndicate: A collection of investment bankers who collectively as a group underwrite the IPO.

UKLA: United Kingdom Listing Authority. More information can be found out on the Financial Conduct Authority’s website here here.

Underwriter: The Investment Bankers/Underwriters role is to ensure the company going through the IPO process adheres to all regulatory requirements. Such as filing the correct documentation, paying the necessary fees and publishing the necessary financial data for the public to see. The underwriters are also responsible for sourcing buyers of the company’s shares. Then recommending at which price and amounts of shares they company should allocate, based on demand initially received. With the aim to sell all the shares, its makes available.

Venture Capital Backed IPO Type: Known as an “exit strategy” for initial private investors to gain money out of what they invested in the company. This involves selling shares to the public as an alternative to being acquired by another company.

Waiting Period : The time between when the registration statement is filed and the date it becomes effective.

Withdrawal: When a company decides to suspend or abandon its IPO.

Prepare, prepare, prepare

Read more

Scaling and Investment Trends in 2023

Read more

IN THE PRESS: A founder’s guide to successful buy and build strategies

Read more