How Does an IPO Work?

What happens during the IPO process and how pricing is determined

how does an ipo work, ipo, what is an ipo, medium wall street, wall street publication, ipo explanation, medium articles
how does an ipo work, ipo, what is an ipo, medium wall street, wall street publication, ipo explanation, medium articles
Source: Wall Street

Step 1: Finding an Underwriter (6 Months before the IPO)

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Step 2: The Kick-off Meeting (4 Months Before IPO)

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Step 3: Drafting Sessions and Filing the SEC Registration Statement (3 Months Before IPO)

Once the team of bankers (there could be more than one used, and usually is), lawyers, and accountants are decided upon, the banker will begin drafting an S-1 document.

Step 4: The Road Show: 2–3 weeks before the IPO

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Step 5: Pricing the IPO

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Step 6: Trading

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The role of stabilization

Once the IPO shares are free to trade the investment bank must play a supporting role. If shares trade up then the bank has the option to increase the offering by 15% at the IPO price to dampen the rise. In Twitter’s case this option represents another 10.5 million shares. The bank earns its commission on these shares and the company benefits from more proceeds.

Step 7: IPO Research (25–40 Day After IPO)

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Step 8: Lock-Up Period Expiration

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