Due Diligence for IPOs

A K Sinha
 IPO Due Diligence
• When a company decides to go public with its shares by Initial
Public Offering process, one of the most important things to do is
to conduct an IPO due diligence and the best advice is to do it
before everything else.

• When it comes to the IPO process, a firm has already decided to

go public by selling a portion of its shares to investment banks as
underwriters of the offering. This way a company could eventually
come to enlargement of its business to the whole world of
opportunities.

• This may be a chance of business growth for the firm by going

public, and for that same reason, it is crucial to conduct Due
Diligence before the Public Offering starts.
Basic IPO Information to Know Before
the Due Diligence
• The Initial Public Offering creates an opportunity both for the
company that is selling its shares, but for the potential investors
as well.
• This process is often referred to as the new star in the company’s
public sector. It is usually realized through investment
banks which also need to be overseeing the due diligence and its
progress before the decision to purchase the firm’s shares.
• By going public, a chance of winning big is also covered with a
dose of precaution since this is the first time many companies will
uncover confidential data and details for an overview.
• Any type of operating faults or unknown business difficulties
might result in aborting the entire Initial Public Offering process.
 Others Involved in the IPO Process
and Due Diligence
• Besides bankers, there will be more people and service
providers that will be included in the Due Diligence and IPO.
• The legal advisor is also having an important role in this
entire process and will be enrolled in the Due Diligence and
the information in it.
• Lawyers will make sure that the whole procedure is done
according to the law and will also with the company
representatives to make a list of all needed regulatory
requirements.
• A financial partner will also be working with the IPO team
and provide the needed prospects for the start of Due
Diligence and IPO.
 Documents and Information Needed
for the IPO Due Diligence
• Organizational Items
• License and Tax Items
• Company employees and board information
• Financial Items
• Service and Customer items
• Property related Items
 Organisational Items
• Request a copy of all the company’s Articles of
Incorporation and business associates records
• Request a copy of all the company’s resolutions of
directors and leading governing board of the
company for an overview
• Ask for a list of firm’s shareholders and
committees
• Request an overview of numbers of shares owned
by each of the company’s shareholders
• Have the company supply you with the Certificate
of good standing from the State Secretary
 Organisational Items
• Have the company submit a report on how
agreements and organizational decisions are made
• Require the company’s annual business reports for the
last 3 years minimum
• Request a list of all the states that the company is
permitted to do business in
• Request for an overview of a company's business plans
and strategic plans for the previous 3 years
• Require the graphic of the company's organizational
structure including records of all the board members,
directors, and employees
 License and Tax Items

• Request a copy of all the company’s operating and business

licenses issued by the State Secretary of the countries that
the company is doing business with
• Require a report on all the company’s tax agreement data
• Request a list of the company’s Local, State, Federal and
Foreign taxing data for the last 3 years
• Request for an overview of all the taxing data for the last 5
fiscal years
• Ask for an overview of the governmental licenses and
permits of the company
• A copy of the income tax reports for the last 3 years
• An overview of employment tax filings for the last 3 years
 Company employees and board
information
• Require copies of employment lists of the company
including all employees, managers, and board of directors
• Require information regarding employee status in the firm,
positions, and salary for each employee
• Information regarding employee benefits and bonuses at
the firm for each position
• Company’s personnel policies regarding employee problem
resolving and sick leaves
• Employee health insurance and other insurances
• Resumes of all the leading personnel of the firm
• A copy of all the company’s employee audits for the last 3
years
 Financial Items

• Copy of all previous broker or investment banking arrangements

• Copy of the company’s financial records for the last 5 fiscal years
• Request an overview of the company’s financial audits conducted
for the last 3 years and its records
• A list of all of the financial accounts for State and Foreign business
of the firm
• Copies of financial analysts reports for the last 3 years
• A graphic of the company’s inventory and access approval
• A graphic of contingent liabilities and strategic plans of the firm
• Information regarding accounting methods and amortization
methods of the company for the last 3 years
• Information regarding fixed and variable expenses for the last 5
fiscal years
 Service and Customer items
• Reports containing information of all the company's
products, services, and complaints
• Reports regarding legal approvals of the services or
products that the company is offering
• Information regarding the company’s best customers
and their benefits for the last 3 years
• Copy of the company’s trading policies
• Overview of the firm’s marketing plans and materials
and future marketing plans information
• Copies of all of the customer supply or service
agreements for an overview
 Property related Items
• A list of all business locations of the firm
• Copies of all the real estate agreements and franchise
licenses
• An inventory list of all the company’s claimed property
subjects
• A graphic of the company’s official trademark and
copyrights established
• A list of all of the firm’s State and Government approved
patents
• History of the company's trademark complaints or issues if
available
• Copies of the official contracts for the firm’s real estate
purchases
 Conclusion
• This checklist and Due Diligence information are crucial for the
preparation of undergoing the IPO process.
• These items are obligational for understanding the organizational
and operational factors of the company, as well as understanding
potential risks and problems.
• General information, reports, and documents included are meant
for a better understanding of both the good and the bad sides of
going public with the shares of your company.
• Forming the right IPO team and finding the best attorney and
financial printer will get you far in the Initial sales of your shares,
and by finding the right people for conducting the best Due
Diligence for IPO will do the big part of work for you.
•
Thanks