Initial Public offering Paper

Initial Public Offering Paper

Introduction

One thing a company can do to grow their business is through an Initial Public Offering (IPO). An IPO is "the first sale of stock by a private company to the public" (Investopedia, 2015). A company like Wal-Mart at one point has stepped into the stock market by their IPOs. We will discuss the steps for what it takes to raise capital and the roles that help a company start an IPO.

Roles of Investment Banker and Underwriter

The Investment Banker’s role in an Initial Public Offering (IPO) is finding investors that agree to purchase securities that the company intends on placing in the open market. They will also assist the company with preparation of a prospectus; this includes writing of the prospectus and working with other constituent parties to make sure that the prospectus is within the boundaries of the law. Additionally, the bank conducts a census to gauge the interest of the buyer clients in the securities and identifying appropriate pricing. Once the prospectus process is complete, the bank performs the role of selling the securities to investors and managing the market for those securities.

An Initial Public Offering involves a number of underwriters who are tasked with particular responsibilities. Before going public, a company must enter an underwriting agreement with a financial firm with negotiations being held between executives of the financial firm and the company that is going public. One of the underwriters attends the negotiation meeting and who assist the finance managers in pricing the deal basing this on the complexity of the offering. The lead underwriter decides whether to offer a firm commitment to the company for the share issue or a best effort agreement.

Roles of Originating House and a Syndicate

The originating house is known by several different names, such as syndicate manager and managing underwriter. The originating house is a collection of multiple firms that the organization has selected, and they pick the members of the syndicate who determines how many shares each will receive, and manages the overall process. The underwriting syndicate is formed when the investment bank needs to enlist the help from other investment banks to sell securities. The offering price, time of offering, and controlling of all advertising for the new issue of securities are handled by the underwriting manager and issuer. They also deal with the federal registration and respond to any deficiency letters from the Security Exchange Commission.

Pricing of the Issue

When a global firm such as Wal-Mart decided to go public and offer an Initial Public Offering IPO, the investment company must consider two issues when deciding how to price the initial