IPO Planner. FAQs. Frequently Asked Questions

Investment bankers want the offering that they underwrite to be successful. Therefore, they look for companies that can fulfill several tried and true criteria to boost the chances for a successful offering and good performance in the aftermarket. Here are some of the most important factors:

An attractive product or service, preferably one with a competitive edge
A sufficiently large market
An experienced management team
Good financial results
Favorable financial prospects
A well thought out, focused business plan
Strong financial controls

What are the factors that determine the value of a firm and the price at which a firm is brought public?

To a large extent, the price at which a company goes public is based on demand emanating from the roadshow. Early on, investment bankers may provide a value or a range of values to a company. But these are only estimates and are very subject to change because of the myriad of factors that go into pricing. Market conditions at the time of the offering play a key role in pricing as does the field in which a company operates. Industries "in favor" with investors at a particular time will help companies command a premium value.

Sometimes investment bankers may tend to overestimate a company's value in an effort to obtain that firm's business. It is always wise to get several estimates and understand that high-ball numbers may not be realistic. When it comes to pricing, many underwriters prefer not to go for the highest possible price. They prefer to leave something "on the table" to increase the chances that the stock will appreciate in the aftermarket and give their own customers something to cheer about. Sure, companies want to obtain the maximum amount of money from an offering. But they should bear in mind that a rising stock price makes for happy shareholders, too.

LISTING & FEES

What are the requirements to list on the NASDAQ National Market?

NASDAQ has set three different standards for initial listing. The first standard requires stockholders’ equity of $15 million, operating income of at least $1 million in the latest fiscal year or in two of the last three fiscal years, at least 1.1 million shares in public hands with a minimum market value of $8 million, 400 round lot shareholders, a minimum bid price of $5 and three market makers. Companies must also meet corporate governance rules.

NASDAQ’s second listing standard varies from the first in requiring $30 million in stockholders’ equity, $18 million in market value of publicly held shares and a two-year operating history. It does not have requirements regarding operating income.

NASDAQ’s third standard does not require a minimum stockholders’ equity or operating income, but does require $75 million in market value of listed securities, or total assets and revenue of $75 million. It also varies from the first standard in requiring $20 million in market value for publicly held shares and four market makers.

Companies listed on the NASDAQ National Market must also meet continued standards in order to maintain their listing.

How much are the fees to list on NASDAQ’s National Market?

There is a non-refundable $5,000 application fee plus entry fees based on the total number of listed shares. For domestic issuers, the entry fee is $100,000 for up to 30 million shares issued, $125,000 for over 30 million and up to 50 million shares issued, and $150,000 for over 50 million shares issued. Fees for non-US issuers are based on the number of shares or ADRs issued and outstanding in the US. There is a separate fee schedule for non-US firms that apply for listing but are not raising capital.

In addition to entry fees, there are annual fees based on total outstanding shares. A company with up to 10 million shares is required to pay an annual fee of $21,225. A rising scale is capped at $60,000 (for over 100 million shares). NASDAQ should be contacted for the complete fee schedule including the separate annual fee schedule for ADRs.

Are listing requirements for NASDAQ’s SmallCap Market less stringent?

Yes. Companies can list on NASDAQ’s SmallCap Market with stockholders’ equity of just $5 million or with a market value of listed securities of $50 million or operating income of $750,000 in the latest fiscal year or in two of the last three fiscal years. Initial listing also requires at least one million publicly held shares with a market value of $5 million and a minimum bid price of $4. Three hundred round lot shareholders, three market makers and a one-year operating history or $50 million in market value of listed securities are also needed, as well as adherence to corporate governance rules.

As with the NASDAQ’s National Market listing, SmallCap companies must meet continued standards in order to maintain their listing.

How much are the fees to list on the NASDAQ SmallCap Market?

There is a non-refundable $5,000 application fee plus entry fees based on the total number of listed shares. The entry fee is $25,000 for up to five million shares listed, $35,000 for over five million to 10 million shares, $45,000 for over 10 million to 15 million shares and $50,000 for over 15 million shares. Fees for non-US issuers are based on the number of shares or ADRs issued and outstanding in the US.

The annual fee is $15,000 for up to 10 million shares outstanding and $16,000 for over 10 million shares outstanding. NASDAQ should be contacted for complete details regarding fees.

What are the requirements for a New York Stock Exchange listing for a domestic company?

In order for a domestic company to list on the NYSE, it must meet certain minimum criteria relating to market value, earnings and share distribution. For example, public shares at the IPO must have a market value of $60 million. In regard to earnings, companies need to have 3-year total pretax income of $10 million or they can meet alternative criteria relating to revenues and market capitalization or operating cash flow, revenues and market capitalization. Two thousand round lot shareholders are required or alternative criteria can be met that relate to total shareholders and monthly trading volume. The NYSE should be contacted for details.

What are the fee requirements to list on the New York Stock Exchange?

There is an initial fee plus ongoing annual fees. The initial fee is $36,800 plus an amount based on he number of common shares issued (on a sliding scale). For example, a company with 10 million shares issued would pay a total initial fee of $95,100.

The annual fee is $930 per million shares issued, subject to a minimum payment of $35,000 and a maximum of $500,000.

Is the London Stock Exchange’s Alternative Investment Market (AIM) an option for non-UK companies?

London’s AIM is targeted to younger growth businesses. While it is understandably dominated by UK firms, there are more than 70 international firms that trade on AIM, and the London Stock Exchange would certainly be pleased to attract even more.

How demanding are the requirements to list on AIM?

Listing requirements for AIM are far less demanding than listing requirements for the London Stock Exchange’s Main Market and may be an attractive option for certain non-UK companies seeking to make an initial public offering. There is no minimum number of shares required to be in public hands, nor is there a minimum market capitalization. Companies interested in listing on AIM are required to appoint a nominated advisor –investment banker, accountant or broker - which attests to a company’s suitability to joining AIM and works with companies both prior to and after public offerings. AIM offers its companies a flexible regulatory environment.

How long does it take to go public in the US?

There is no one answer since there are many variables involved. The first step is to assemble your core IPO team, including lead underwriter(s), legal counsel and accountants. Then your printer, transfer agent and other team members are selected and responsibilities assignedmany variables involved. The first step is to assemble your core IPO team, including lead underwriter(s), legal counsel and accountants. Then your printer, transfer agent and other team members are selected and responsibilities assigned.

Once the team is ready to go, a typical IPO timetable is as follows:

Time Period

Steps

Weeks 1 through 8

Preparation of prospectus and registration statement.

Submit to SEC

Weeks 8 through 13

SEC review period

Weeks 10 through 13

Road show preparation

Weeks 12 through 14

Amendments to SEC filings

Weeks 14 through 17

Road Show/Marketing

Weeks 17 through 20

Complete prospectus. Approve offering terms and price with underwriters.

File prospectus – offering.

What is the meaning of the “green shoe” option?

The “green shoe” option gives the underwriter the right to sell at the original offering price additional company shares – often up to 15 percent of the offering – for up to 30 days after the IPO takes place. The over-allotment option provides the underwriter with the ability to enlarge the offering without committing to do so in advance.

What is the lock-up period?

The lock-up period is a specified period of time – generally 180 days – during which pre-IPO shareholders, including management and directors, may not sell their shares, as per agreement with the underwriter. The purpose of the lock-up period is to prevent an oversupply of shares from impacting the market.

What is the quiet period?

Once a company registers to go public, Securities and Exchange Commission rules prohibit a company from making written public announcements of a promotional nature until 25 days after the initial public offering takes place. The quiet period rules are meant to prevent companies from hyping their stock and thereby protect investors. The SEC is currently considering a revamp of the quiet period regulations that would offer companies greater latitude in their quiet period pronouncements.

What is the cost of going public?

The cost of going public will vary considerably from company to company. Expenses are dependent to a large extent on the degree to which a company’s legal and financial house is in order and the company’s type of business. Typically, legal fees and expenses are the largest single cost item, running from $600,000 to $900,000. Accounting fees and expenses are usually not far behind, generally ranging from $350,000 to $600,000, while printing and engraving expenses often are from $175,000 to $400,000. The total expense of going public generally ranges from $1.5 to $2.5 million, including such significant cost items as stock exchange application and filing fees, Blue Sky fees and transfer agent and registrar expenses. Other expenses that can boost the cost of going public are advisory fees and non-accountable fees that may be paid to underwriters. The range presented is not hard and fast. There are small, underwritten issues that are completed for about $1 million and certain larger or more complex offerings that well exceed $2.5 million. And don’t forget the intangible costs of going public in terms of the demands on management time, which takes away from focusing on one’s business.

How much is the underwriters’ commission?

Typically, a firm-commitment underwriting carries a 7 percent underwriting discount. So, a firm that sells five million shares at $15 a share will receive $75 million less 7 percent or net proceeds of $69.75 million (before expenses). Very small offerings might have a higher discount – 8 or 9 percent – and underwriters at times will negotiate reimbursement of non-accountable expenses in order to boost their fees.