Freed Up

At the time of considering an initial public offering, a company appraises the pros and cons of the proposal and the motivations for going public.

The Freed Up phase starts subsequent to the Lock-Up stage when the advisors and management focus on the promotion.

It is the phase that adds the most value to the offer, where the management weighs up issues or untimely delays and takes steps to preserve the value, while, enhancing the market confidence in the management and rebuilding brand image. 

Freed up funds is the term used for money from the original investors spent on new investment or a new IPO.

As a firm plans to launch an IPO, the prime motivations are - 

•  Access to capital – To raise liquidity and working capital, or to fund organic growth, or to repay debts, or to fund a new acquisition. 

• Liquidity- It can be started for managing corporate liquidity where the shareholders can sell their positions and receive proceeds for their share. 

• Branding – Such events are, sometimes, held by businesses to get worldwide publicity. 

• Gain public currency- It can be held for gaining additional resources.

• For the benefits of employees – To allow the workers to benefit through the financial success of the firm and also to attract new talents. 

The issues faced during the process are –

• The loss of privacy – One has to divulge potentially sensitive information publically.

• Regulations – The public companies must file reports with the government agencies and the SECs to comply with the needed disclosures.

• Cost- Going public requires investment in legal, auditing, and related services. 

Timeline 

1st Month–  The management takes important decisions related to the process which includes selecting the lead investment banks, the law firm, the auditors, and others. 

2nd Month–  The time is spent on finalizing the disclosures’ in the registration statement and helping the underwriters with the diligence drills.

IPOs are registered and at the end of the month, one sends the document to the SEC as a confidential submission. 

3rd Month- The issuer meets the institutional investors. They launch a formal roadshow and the TTW (or testing the meetings of the waters).

TTW meetings are optional and not part of the deal. The firm needs to analyze the expense to organize such meets. 

• The firm’s representatives choose the stock exchange for listing, meets the analyst/management teams or the syndicate bank. 

• They finalize the board of directors particularly the identity of the independent directors where they select independent directors and focus on choosing the composition of the board committees. They determine corporate governance decisions and finalize employee benefits. 

• The underwriting agreement is signed. Such documents help to carry out the due scrutiny of the proposed. 

• Lock Up and Freed Up phase – Till the Lock-Up, there is room to negotiate.

The issuer’s existing shareholders, officers, directors, and others are asked to agree not to sell any of their shares during the 180 days followed by the offering and the underwriters need the signed lock-up agreement to be delivered before the launch of the roadshow and the marketing during the Freed Up phase.

There are many requests delivered before the initial filing of the registration statement. 

4th Month - It is the month when the firm gets closer to its goal. It prepares for Road Show Slides and finalizes the Valuation.

The Road Show starts with educating the sales force of the lead underwriters and it may involve one-to-one meetings with institutional investors and high net worth buyers. 

Through a block building process, a pricing recommendation on how many shares can be sold, and the deal price is determined.

The underwriters then immediately resell the shares to investors who are allocated the IPO stocks, hence, confirming orders.