Ringing the opening bell on the Nasdaq or NYSE floor represents the culmination of a long and potentially risky IPO process. Securities lawyer Megan Penick of Michelman & Robinson offers an insider’s view of what it takes to get there.
For public securities lawyers like me, nothing is quite as satisfying as celebrating a company’s listing during an opening or closing bell ceremony. So far this year, I had the extraordinary opportunity to stand behind the Nasdaq podium twice alongside my clients (an issuer in one case, an underwriter in the other), their teams and families, ringing the bell and basking in the glow of going public.
On a personal level, the bell ceremonies provided moments to reflect with pride on my intense work with issuers, banks, Public Company Accounting Oversight Board-registered accounting firms, bridge investors and opposing counsel, all pulling oars in the same direction toward a common goal.
Bringing a company public is truly fulfilling. But it is no easy task. While the going-public process generally takes anywhere from three to six months, my involvement can sometimes be much longer, depending on the company and overall market conditions.
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Going public, or a company undertaking an initial public offering by selling shares of stock to the public, is done in an effort to raise additional capital to create liquidity for the company.
As a rule, going public boosts a company’s profile and provides resources to invest in future operations, expansion or acquisitions. But with the benefits come regulatory scrutiny, diversified ownership and the imposition of restrictions upon management. After going public, a corporation must expend significant time and resources meeting SEC reporting requirements, managing stockholder expectations and continuing with the ongoing day-to-day operations and growth of the business. For these reasons, when I represent the issuer, getting the company public is just the beginning.
The process of going public
Typically, the key parties involved at the outset of an IPO are a company’s CEO and CFO. I see myself as their guide.
Even when the C-suite boasts serial entrepreneurs familiar with the IPO process, oftentimes officers and company directors require significant counsel throughout the process of going public, as they typically lack significant familiarity with the many associated rules and regulations. From the start, this includes ongoing discussions of timelines, to-do lists (IPOs take a while and require patience) and steady hand-holding. Stakeholders quickly realize the effort involved in the endeavor the moment the SEC sends its first comment letter, which can have upwards of 40 questions requiring answers in correspondence form. Follow that with required updates to the registration statement, and the uninitiated issuer begins to understand the magnitude of the job ahead.
As for company boards, I get to know them quite well and on occasion even assist in their assembly, as changes to board composition are often required to meet listing requirements and facilitate taking a company public. Remember, when an organization is private, its board can consist entirely of insiders with no mandates in terms of diversity. This is not the case when listing on a stock exchange. For Nasdaq, there are diversity requirements now in place by which, depending on the size of the board, reporting companies must have at least two directors from minority backgrounds and no fewer than one woman on the board. I am frequently called upon to work toward compliance with this new rule; in fact, it is a required disclosure as part of the company’s listing application.
Over the several months needed to take a company public, those involved — board and all — get to know one another quite well. From a lawyer’s standpoint, this is a highlight. Unlike in litigation, which is extremely adversarial, going public is highly collaborative.
Everyone engaged is singularly focused on achieving listing on a recognized exchange (say, Nasdaq or NYSE) and completing the sale of equity securities into the public market. In my experience, getting there usually involves weekly calls organized by the underwriter (investment banker) and, when I represent an issuer, daily interaction with its CEO and CFO as we work to gather, draft and exchange documents.
When it comes to the anatomy of an IPO from a legal perspective, the parties can expect quite a to-do list. Among the tasks at hand:
- Marshaling documents and conducting thorough due diligence
- Working with the company to draft the prospectus, which includes detailed business descriptions and history, risk factors and audited financial statements
- Drafting risk factor disclosures (typically a 15- to 30-page document within the registration statement that sets forth for investors the potential-though-unlikely risks behind their investment)
- Negotiating the terms of the offering with the underwriter
- Navigating the SEC review process and ensuring the company’s business descriptions and other disclosures are as complete and accurate as possible
- Taking the company through the stock exchange listing process, including filing the initial application, and working with the exchange and underwriter to ensure the company will be fully compliant with all exchange listing requirements
Throughout the process of going public, communication is key. When serving as the issuer’s attorney, I need to understand completely its business and finances, not only for purposes of the requisite disclosures but also in anticipation of my follow-on role as the company’s general outside counsel post-IPO.
When all is said and done, bringing a company public can be costly, tedious, document-intensive and all-encompassing. Nonetheless, the rewards for the issuer in terms of capital, the ability to attract top-tier talent, media coverage and PR, public perception and influence are undeniable. For some of my clients, a successful IPO can even be life-saving — I represent several biotech and pharmaceutical companies that have used their access to capital to take them through the drug development process, with the goal of achieving FDA approval.
For me and my fellow professionals, the value of seeing an IPO through to the end is not quite as lofty but no less meaningful. We are trusted with the awesome responsibility of working together all for the good of a company and, ultimately, its customers and stakeholders. Being able to do so — as stressful as it may be and whether or not a bell is ever rung — is an absolute privilege.