Initial Public Offerings (IPO's) at a Glance
The first step in the journey on the road to an IPO is to build the company
into a viable business. The firm then approaches an investment bank, the
underwriter, to Shepard the company through its offering. At that point,
the investment firm will perform a valuation of the firm in order to determine
the true worth of the company, how many shares should be issued to the public,
when to issue the shares and at what price per share. In accordance with
the full disclosure requirement of the Securities Act of 1933, the investment
bank is required to file a registration statement with the Securities and
Exchange Commission (SEC) which includes a description of the business,
financial statements, primary purposes for the money being raised from the stock
issue, legal proceedings involving the firm, biographical information on the key
officers and executives of the firm, shareholders who own more than 10 percent
of the stock and the number of shares owned by officers. After filing the
papers there is a cooling off period during which the SEC is satisfied, it gives
its approval for the issuance of stock to the public. The effective date,
the date on which the approval comes, means from that day on the firm can hold
its IPO. During the interim of waiting to hear from the SEC, the
investment bank will try to drum up interest in the issue. Generating high
is a very important factor in determining the price of the issue. This
select group of investors usually makes a commitment to purchase a certain
number of shares at the public offering price.
If there is a public buzz surrounding the issue on the IPO date, the price of
the stock may quickly rise above the offering price. Conversely, if there
is very little excitement surrounding the IPO, the stock price may even slip
below the offering price. The spread, also called the difference,
is used to pay the underwriting investment bank. The investment bank
usually enters into one of two deals with the firm. The first deal is
called a firm commitment in which the underwriter guarantees the company
to sell a certain number of shares. If for some reason the public does not
buy all the shares, the underwriter will buy the rest. The other agreement
is called best efforts. In this deal the underwriter commits only
to do the best that it can to sell the shares thus leaving the issuing firm for
any unsold shares.
You have been given the basics and a starting point, go from there!
™ Digital & Electronic Music Organization, Inc. 
