Whether you are planning your exit via a strategic transaction or an IPO, virtual data room supports you in increasing your value, avoiding surprises, and strengthening your credibility. In this article, we will consider what is an IPO and how to organize it securely.
IPO as an alternative form of investment in global capital markets
The modern financial market is flexible and dynamic, which leads to the constant updating of financial instruments, among which the IPO is an example of financial innovation. At the current stage of development, companies are looking for long-term and effective alternative sources of financing, among which IPO has a significant place. It is one of the forms of attracting additional financing by offering the issuer’s securities for sale to a wide range of investors who have access to the stock market. This type of raising capital in global markets has individual characteristics since the IPO can have both positive and negative economic consequences.
There are three main goals for an IPO.
- attracting a significant amount of financial capital on a long-term basis. According to experts, for countries with high sustainable annual economic growth, the ratio of borrowed capital on the stock exchanges and gross national income exceeds 2%, regardless of the level of economic development.
- objective assessment of the value of the enterprise. The main criteria are the availability of effective market regulation, regulation of corporate relations, free access of investors, and high-quality competition. Regulation of corporate relations involves the adoption of standards of corporate governance and “transparency” of information. Low barriers to investor entry and a variety of investment mechanisms are fundamental to free access for investors.
- Positioning the company as a public institution. The initial public offering confirms that the company’s corporate governance meets the accepted standard, the achieved information transparency and the company has a long-term business development strategy.
How to prepare for IPO?
Preparation for the IPO requires a radical restructuring of the company, preparation of reports following the requirements of international financial reporting. As a rule, such a procedure takes from six months to several years, and costs can reach up to 20% of the total funds raised.
The process of preparing and conducting an IPO requires an integrated approach and includes several stages:
- comprehensive diagnostics in a form of due diligence (includes evaluation of the group structure, financial statements, financial forecasts and budgets, tax risks, internal control, and corporate governance systems, etc.);
- creation of a transparent corporate structure (includes, among other things, business valuation, financial modeling, business plan development, sale of non-core non-profitable assets, tax advice);
- creation of a team of specialists, preparation of documentation, and taking measures for the IRO.
In parallel with these processes, the company, with the help of its consultants, prepares a number of documents that must be attached to the application for the admission of the company’s securities to the quotation list and to exchange trading. To make this procedure easier and more efficient, the use of virtual data room software is a common practice today. This software provides a secure collaborative environment and data repository for the automation of these business operations.
Data rooms are used to protect confidential business information and are the ideal solution to manage partnerships and deals. With data rooms, you can be sure that only authorized persons can access your sensitive documents and that all documents are used according to the assigned roles and authorizations.