The IPO Process, End to End

Why a company lists, and why one does not

The reasons to go public are narrower than the prestige suggests: raising primary capital for growth or to repay debt, giving early shareholders a route to sell, creating a liquid currency for acquisitions and employee pay, and the discipline and visibility that come with a public quote.

The reasons not to are substantial and have grown. Public company costs run into millions annually, quarterly reporting shortens management horizons, ownership disperses, and private capital is deep enough that many companies no longer need a listing to fund growth. A candidate who can argue both sides is well ahead of one who treats listing as an achievement.

The timeline

Who does what in the syndicate

The titles look like a hierarchy because they are one. Global coordinators run the process, control the book and take the largest fee share. Bookrunners share the institutional relationships and the allocation discussion. Co-managers contribute research coverage and distribution and do comparatively little of the work.

The company appoints more banks than the transaction needs, for reasons that are partly about distribution and partly about relationships. An analyst on an ECM desk spends a great deal of time on syndicate coordination, which is worth knowing before you say the job is valuation.

How the price actually gets set

This is the part candidates get wrong, because it is not a valuation exercise in the way a DCF is. The sequence runs from a valuation view to a marketing range to a clearing price.

Bankers start with a fundamental view from comparables and a DCF. That becomes a valuation range in the pitch. After investor education, the feedback tells the banks where institutions are actually willing to engage, and the published price range is set below the fundamental view deliberately. The discount, commonly quoted at ten to fifteen per cent against where the shares are expected to trade, exists to get the book covered and to leave a first-day gain that rewards the investors who committed early.

• Bookbuilding collects bids at prices and sizes across the range. The book is described as covered when demand exceeds supply, and oversubscription is reported as a multiple.
• The price is set where the book is strong enough to trade well, not at the highest price that clears. Selling every share to buyers who want none of them the next morning is a bad outcome for the company.
• Allocation is discretionary. Long-only institutions expected to hold get more than hedge funds expected to sell into strength, and that discretion is a large part of what the syndicate is for.
• The greenshoe, or over-allotment option, lets the syndicate sell up to fifteen per cent more shares than offered and buy them back in the market if the price sags. It is the mechanism behind price stabilisation in the first thirty days.

Underpricing, and what a first-day pop really means

A share that closes thirty per cent above its offer price is usually reported as a triumph. Read from the company side it is capital left on the table: the same shares could have been sold for more. Read from the bank side it is a successful placement with happy institutional buyers.

Both readings are correct, which is why the tension is a good interview question. The honest position is that some underpricing is a rational cost of certainty, and a very large first-day move is evidence the range was set wrong or the book was misread.

The alternatives, and when each is used

• Direct listing: existing shares are admitted to trading with no new capital raised and no underwriting. Suits a company with no funding need and a shareholder base wanting liquidity.
• Special purpose acquisition company: a listed cash shell merges with the target. Faster and with more negotiable terms, and the sponsor economics dilute existing holders substantially.
• Dual-track: an IPO process runs alongside a sale process and the company takes whichever gives the better outcome. Expensive, and it improves the price in the other track by creating a genuine alternative.
• Staying private: a late-stage round or a secondary sale can deliver liquidity and capital without the reporting burden, which is why the median age at listing has risen.

What ECM interviews ask

• "Walk me through an IPO." Give the timeline above in about ninety seconds, then stop. The follow-up is where the marks are.
• "Why is the price range below fair value?" Certainty of execution, and rewarding the investors who commit before the price is known.
• "What is a greenshoe and who benefits?" Fifteen per cent over-allotment, used to stabilise the aftermarket. It benefits the company through a more orderly debut and the syndicate through a hedged short position.
• "Would you advise this company to list now?" Name the market window, the comparables, the company readiness and the use of proceeds. The answer no, with reasons, is a strong answer.
• "What happens at the end of the lock-up?" Usually 180 days. Supply arrives, and the market has generally anticipated it, which is why the move around expiry is often smaller than expected.