A company goes public to raise capital for financing business plans, capital expenditures, and growth opportunities. When a company intends to go public:
The company picks a lead underwriter to help with the securities registration process and the distribution of the shares.
The company must develop a preliminary prospectus that includes information on the management team, the company’s target market, competitors, all financial data for the company, and the expected price range and number of shares to be issued.
The lead underwriter files a registration statement on behalf of the issuing company with the Securities and Exchange Commission (SEC). The company must typically wait a minimum of 20 days for the SEC to review the registration statement.
The SEC reviews the statement and preliminary prospectus to determine if the issuer meets legal and regulatory requirements. However, the SEC neither approves nor disapproves the issue itself, it only clears the issue for sale.
During the SEC review process, the lead underwriter assembles a group of other investment banks and broker dealers to become members of the underwriting syndicate.
After the registration statement is filed and preliminary prospectuses are distributed, the underwriting syndicate and selling group members act as a distribution channel by recording indications of interest in the IPO on the part of institutional and individual investors.
After the SEC declares the registration statement effective and the offering price has been determined, the selling group members are able to accept the confirmed indications of interest and begin the share allocation process.