Page 141 - Initial Public Offering - An Introduction to IPO on Wall Street

These results show that the results of early IPOs provide knowledge about the future of the
industry that could be useful to other businesses in the industry preparing to conduct an IPO.
The following is a real-world example of this.

Blue Apron

The IPO of Blue Apron clearly shows how competitiveness in a market can impact IPO timing
and performance. On June 29, 2017, Blue Apron went public just fourteen days after Amazon
revealed that it was looking to buy Whole Foods. Blue Apron expected to sell thirty million
shares at $15 to $17 per share, which would have earned it up to $510 million and culminated
in a $3.2 billion valuation.

This valuation may have been probable if Blue Apron had conducted its IPO a month earlier.
Eventually, however, the shares of the business were sold for $10 per share, earning $300
million and resulting in only a $2.1 billion valuation. Blue Apron missed out by $1.1 billion
and a month.

While Blue Apron may not have envisaged and anticipated the announcement of Amazon, and
while several other variables led to the result of the IPO of Blue Apron, this example shows
how timing can have a dramatic effect on the success of an IPO.

Ability to Raise Additional Capital as a Public vs. Private Company

In anticipation of becoming a public corporation and getting listed on a major U.S. stock
exchange, bankers and a company’s top management frequently develop a strategy for
generating additional capital in the future that will enable the business to meet certain
thresholds of profitability ( free cash flow, Net Income, EBITDA, etc.).

Due to the growing requirements for disclosure and openness of quarterly financial reports (and
yearly audits), public corporations can raise capital quicker and more effectively now that they
have access to all investors in the public sector. Besides, with greater accountability, the cost
of equity capital or debt for public corporations is also lower.

In comparison, raising capital as a private corporation can be time-consuming and costly since
private equity and venture capital companies need a comprehensive financial and business
review process to be able to properly assess an organization.
Also, cash injection from private investors in a timely way depends heavily on established
relationships that dramatically lower the pool of potential investors and can lead to substandard
terms of the agreement.

Corporate Readiness

One of the most important considerations for timing an IPO is corporate readiness. Even in
favorable market conditions, it is strongly recommended that a management team should be as
structured as possible to ensure a seamless public offering. The following are three categories
corporate readiness can be broken down into:

Practicalities

Every business has organizational and logistical duties that need to be fulfilled before an IPO
process. For instance, if an organization has not done so, having a third-party accountant
conduct a financial audit is a significant gating factor in filing documents with the SEC.

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