Page 127 - Initial Public Offering - An Introduction to IPO on Wall Street

5.2.7 Step 7: Transition to Market Competition
The transition to market competition, the final phase of the IPO process, begins 25 days after
the initial public offering, once the SEC's required 'quiet period has ended. During this time
investors have shifted from depending on mandatory disclosures and prospectuses to reliance
on market forces to gain information on their securities.

Shareholders rely on the business prospectus and hardly any other detail during the quiet period
to determine the value of the shares. Shareholders begin assessing the business’s value based
on the relationship between the business and the consumer during the transition to market
competition.

Visualize playing poker with the cards held close to your body in the first round, and then
completing the subsequent rounds with the cards visible for all to see. The first round is the
quiet period and the transition to market competition is the rounds that follow.

After the 25-day duration lapses, underwriters can provide projections of the issuing business’s
earnings and valuations. Thus, once the offering has been made, the underwriter takes on the
roles of evaluator and advisor.

Metrics for Evaluating a Successful IPO Process

To evaluate the success of an IPO, the following metrics are utilized:

Market Capitalization

If the business’s market capitalization is equal to or greater than the market cap of industry
rivals within thirty days of the initial public offering, the IPO is deemed successful.

Market Cap= Stock Price x Total Number of Company’s Outstanding Shares

Market Pricing

The IPO is deemed to be successful if the gap between the issuing business’s market
capitalization and the offering price is less than 20 percent thirty days after the IPO. Otherwise,
the IPO’s performance becomes doubtful.

As a business, for the reasons already stated, an IPO might be a game-changer for you. The
IPO process is a bit difficult, costs a fair bit, and can take time to complete. However,
considering the investments that are made and the costs that need to be incurred in the IPO
process, taking a business public has great advantages.

Don't allow an obstacle to deter you from getting your business to the next level. Nothing
pursued, nothing accumulated. If you want to reap the benefits, you will need to take a chance.
But you've got to go about it carefully. If you do that, great rewards await you. When it comes
to approaching an IPO with caution, one of the most important steps to take is carefully
considering its cost. The costs of an IPO that you need to consider are discussed next.

6. Costs
The IPO process is a very large undertaking and deserves proper preparation and consideration
many years before your expected filing date. The process can become very costly due to the
complex nature of filing with the SEC as a public corporation.

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