Initial Public Offerings

The Role of Investment Bankers in Initial Public Offerings (IPOs)

A large number of companies go public in the United States every year. 2021 was the most notable year in this regard, as 1035 companies went public. As going public is a long, tiresome process that requires businesses to settle a lot of matters, they usually turn to investment bankers, also known as lead underwriters.

Investment bankers are the ones that can boost the chances of successful initial public offerings. They are the face of your offerings to local, national, or even global investors and affect their investment decisions. But how do they do that?

In the text to follow, you will learn about the role of investment banks in initial public offerings and how they can make IPOS more efficient and faster with digital tools like online data room software.

Why are investment bankers important for initial public offerings?

Before moving to the role of investment banks in IPOs, it is vital to know how things start between companies and investment bankers.

The process starts with a bank analyzing your business plan and most likely scrutinizing the most critical aspects of your business. Banks do this to determine whether they want to offer professional underwriting services to help you go public or not.

If the bank believes that going public is feasible for you, it will ask the company to go further. At this stage, it is important to know that if one bank is willing to take the IPO forward, many others will want to offer their services as well.

Depending on the size of the company, it may need more than one lead underwriter (investment banker) to run the IPO. Apart from that, the role of investment bankers may vary depending on the contract made with the company going public. Still, here are some common roles of investment bankers in IPOs:

  • Make a letter of intent
  • Provide financial advice as a lead financial advisor
  • Make a banking syndicate
  • Create a listing execution plan
  • Make adjustments in offering strategy and structure
  • Help in bettering the investment thesis, also referred to as equity story
  • Prepare a registration statement
  • Create marketing strategy and materials for the company
  • Build a valuation framework
  • Assist the company in selling shares to the investors
  • Purchase the entire offerings from the company and then sell them to the investors
  • Give professional advice on merger or acquisition offers received by the company
  • Offer analysts to help companies publish research on the company and help them position better for the IPO

If you are following WeWork IPO postponement, you can get an in-depth analysis of the case here:

What are virtual data rooms, and how can they help in IPOs?

Virtual or electronic data room technology is a cloud-based digital solution for:

  • Data management
  • Data sharing
  • Online communication
  • Meeting management
  • Project management

Here is how investment bankers or companies can use virtual data rooms for streamlining initial public offerings.

Fulfillment of data security requirements

Data room technology is trusted by companies and investment bankers when sharing sensitive information with potential investors during IPOs.

Most of the virtual data room services are certified by local, national, regional, and international regulatory bodies like SOC, GDPR, FINRA, and ISO. Also, hiring certified, top-quality data room vendors like DealRoom, iDeals or Merrill allows companies to comply with the above-mentioned regulations.

Better data organization

Using data room software, investment bankers can organize tons of data to be used and shared during IPOs with maximum ease. The software allows users to segregate or categorize documents in multiple folders or subfolders. Many vendors provide built-in due diligence checklists which allow companies to organize documents in a recommended manner.

Instant data access

Instant document access is one of the best things about virtual data room technology. It allows everyone (investment bankers, management, potential investors, board members, stakeholders, etc.) involved in the transaction to immediately access documents from anywhere, anytime—thanks to dedicated mobile apps offered by the vendors.

What’s more, features like smart search and full-text search make it possible to find the desired document in a matter of seconds.

Assistance in white paper creation

As data room services are evolving and becoming niche-oriented, many high-end service providers offer built-in IPO templates for different industries. These templates are developed by industry experts and save a lot of time for investment bankers.

Secure workspace for dealmakers

Virtual data rooms act as resourceful workspaces for initial public offerings where users can:

  • Share, distribute, and exchange data
  • Manage online and physical meetings from start to end
  • Ensure two-way communication via different modes like Q&As, group chats, and individual chats

Final words

Investment bankers are at the forefront of modern-day initial public offerings. They provide different services to companies that may include financial advice, expert opinion on M&A offers, preparation of different documents, bettering the investment thesis, and much more.

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