Page 163 - Initial Public Offering - An Introduction to IPO on Wall Street

Third parties, such as clients, vendors, and manufacturers, will also be approached and spoken
to by the due diligence team. After all, issues in the distribution and supply chain with partners
will snowball back to the business itself.

For instance, in a bankruptcy court case, a financially distressed client may tie up the inventory
of a business, or a distributor of a vital part may face a prolonged shutdown while it irons out
virus-related issues with its software for factory automation.

In IPO due diligence, both rising startups and established businesses need to pay attention to
detail to ensure that whatever they claim in the statement of registration can be backed up. This
is critical to the success of the IPO.

9.2.1 Who Does What
The degree and type of due diligence analysis for an IPO will differ based on the nature of the
market, sector, and risk profile of the business, as well as the locations where the company’s
stock will be sold. The following are some of the key components of IPO due diligence:

 In response to a detailed list of due diligence requests prepared by the underwriters' lawyers,
the organization producing documents
 The auditors of the business preparing and providing the underwriters with a comfort letter
that provide some guarantees regarding the financial details included in the offering
documents
 When needed, the CFO of the business providing authorization to underwriters to provide
"management comfort" on stated financial data in the offering documentation that falls
beyond the scope of the comfort letter of the auditor
 Responding to requests from underwriters for records of data used in the prospectus and
statement of registration, the business producing materials that its auditors have not given
comfort on or that have not otherwise been checked through the diligence procedure (also
called back-up requests)
 Underwriters or their attorneys interviewing the management of the business, auditors, and
possibly other third parties (such as consultants, clients, suppliers, and/or partners of the
organization)
 Questionnaires being finalized for the business and the underwriters by some of the
business’s principal security holders, directors, and executive officers
 Other forms of business and financial due diligence, which may involve, for instance, a
summary of budgets, forecasts, historical financial details or competitive trends, or site
visits to the properties of the organization
 Before the first classified submission or filing of the statement of registration, the majority
of the due diligence work is carried out, followed by updates via the closure of the IPO.

The most labor-intensive aspect of the due diligence process for business management is
usually the compilation and arrangement of the materials needed to respond to the list of back-
up requests and due diligence requests. The best way to save time and money in the IPO due
diligence process is to find out beforehand everything that will be needed to perform proper
due diligence. A checklist that can help you to ensure this is provided next.

9.2.2 The IPO Due-Diligence Checklist
The following is a breakdown of the tasks involved in IPO due diligence based on the
information that is needed to prepare the prospectus required to file the registration statement
for IPO. The following checklist is meant especially for those responsible for performing IPO
due diligence for a company.

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