Taking a Company Public

Investment banking services for growing companies

You have built your company. It has taken years. You have a proven track record. You’re successful. But future successes will take more capital than you have. Yet you do not want to – or maybe you just can’t – take a loan.

One alternative is to take your company public and issue stock. Your company will receive the cash infusion it needs, as well as increased visibility. At the same time, your interest in the company can be increased by virtue of a liquid public market for your stock.

But where do you begin? What do you have to do first? Who can answer your questions? Who can guide you through the process of taking your company public – whether it is an initial public offering or a secondary offering?

The role of an investment bank

The role of Raymond James & Associates, or any full-service investment bank, in an initial public offering is that of advisor, underwriter and salesperson. An investment banker advises a company as to the best timing for an offering, the size of an offering and the optimal pricing of the transaction.

In addition, the investment banker will recommend how a client company can best present itself to the investing public. These recommendations may take many forms, including suggestions for restructuring the company or companies, revising the capital structure and eliminating conditions that might be deemed conflicts of interest.

The investment banker also plays a major role in the drafting of the offering prospectus.

Beyond an advisory role, the investment banker conducts a marketing program – or selling period – to create investor demand for the offering. This marketing program takes place after a preliminary prospectus is filed, but before the effective date of the registration statement.

In structuring the selling group, an investment bank may form a syndicate of other investment banks and brokerage houses to underwrite the company’s initial public offering.

Subsequent to the offering, the investment banker provides research and trading support for the company’s stock in the aftermarket. This support is intended to help maintain investor interest in the company and foster a stable market for its shares.

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Determining when to go public

Proper timing is critical to an initial public offering. It is important to choose the right moment, both in terms of market conditions and in terms of a company’s growth, future prospects and current operating conditions, to avoid either a delayed offering or a reduced price for a company’s stock.

In determining the optimal timing for an initial public offering the following factors should be considered:

The company’s performance: Most companies must have several years of growth and consistent financial performance before their equity securities can be considered acceptable to public investors. Recent periods of flat or adverse financial performance can make a company much less attractive as an initial public offering candidate.

The decision to go public at any particular time must appropriately weigh the potential increase in valuation by postponing an offering against the risk of sustaining an unfavorable earnings period that may preclude any offering at all.

The size of the company: While it is not possible to establish any rigid minimum size standards, most major investment banking firms prefer at least a $50 million offering at a minimum price of $10 a share. Smaller offerings are more difficult to market and aftermarket trading is often volatile due to the reduced number of outstanding shares, or float.

The company’s prospects for future success must be good: If the company’s recent sales or earnings have been, or are expected to be, adversely affected by competition, losses or other serious problems, it may be advisable to postpone financing until the company’s performance indicates that such difficulties have been overcome.

Good market conditions should prevail at the time of an offering: If overall market conditions are not considered good, a company could be faced with the possibilities of selling stock at a lower than desirable price, selling less stock than was intended and/or not being able to complete the offering at all.

Structuring a company to go public

A company that is planning to go public must have an organizational and capital structure which is relatively simple and can be understood by the investing public.

If the business is not conducted through a single corporation or a parent corporation, the investment banker usually can assist the company in reorganizing to achieve the necessary configuration through mergers and/ or liquidations. The investment banker can also assist in simplifying the capital structure to one that is more appropriate for public investment (e.g., classes of preferred stock may be exchanged for common stock). A stock split or reverse stock split can also be recommended to bring the number of shares outstanding to a desirable level for a public offering.

The size of the offering, subject to a minimum level, should be based upon the company’s needs. A minimum size is important to create sufficient interest within the investment community in order to attract a large syndicate and active aftermarket. As previously mentioned, $50 million is the target minimum level. An offering of less than $25 to $30 million becomes uneconomical from the issuer’s standpoint because of certain fixed registration, legal, accounting and printing costs.

The offering price must be tailored toward the potential investor. A $10 to $20 offering price per share is the optimum range for most retail investors today. A price below $5 can have negative connotations for both salesmen and investors, as it will be categorized as a “penny stock.” A price greater than $20 requires an amount of money for a round-lot purchase (100 shares) and is more than many retail investors prefer to invest.

The number of shares offered is also critical to an offering’s ultimate success. It is important that the offering result in a sufficient number of shares and shareholders to create a viable, liquid trading market. Approximately 1,000,000 shares is generally considered the minimum number for an initial public offering. If the offering were substantially smaller, many investors would tend to avoid it as an “illiquid issue.”

Pricing of a company’s stock

The valuation of a company’s stock is influenced by four important factors:

• The company “fundamentals” – past performance, current financial and marketing strength, and future outlook,
• General market conditions,
• The price-to-earnings multiples of comparable companies, and
• The investment banker’s reading of the demand for the company’s stock.

This last factor is measured on the basis of pre-offering “indications of interest” by potential buyers to whom the company’s stock is marketed during the offering period. Because each of these factors can change between the time the preliminary prospectus is filed and the offering is made, the investment banker initiates pricing discussions with a relatively wide price range (i.e., a spread of approximately $2) based on a range of price-to-earnings multiples at which the company could consider going public. This range appears on the cover of the preliminary prospectus as the “estimated initial public offering price.”

As the offering date approaches, the investment banker fine tunes the offering range to reflect recent readings of market conditions, assessments of the market’s attitude toward comparable companies within the company’s industry and the apparent demand for the company’s stock.

The exact price will usually be fixed by agreement between the company and the investment banker at the close of the market on the day before the offering. Should the company and the investment banker conclude that the price at which the offering can be accomplished is unacceptably low, the offering may be postponed until a time when it can be successfully completed.

On the other hand, if demand proves very strong and the general market is rising, the investment banker may recommend that the offering price be raised above the estimated price range.

It should be noted that while investment bankers always strive to aggressively price an initial public offering, it is not necessarily advantageous for a company’s stock to be sold at the absolute highest attainable price. While a company should not sell at a substantial discount from the highest attainable price, most investment bankers advise companies to offer their stock at prices slightly below (i.e., approximately 10%) the anticipated post-offering price. This will allow some immediate – but limited – appreciation and should help to create an ongoing positive market attitude toward a company’s stock.

If an offering price is set too high in relation to the company’s financial expectations, its peer group or, most important, the demand for its stock, the price may fall after the offering. Overpricing an issue will leave an unfavorable attitude with investors who feel they have overpaid on the initial offering, which could impair the company’s ability to market future offerings.

Structuring an underwriting syndicate

Shares sold by a company that is going public are often underwritten by a group, or “syndicate,” of investment banks and brokerage houses. This syndicate is headed by the company’s investment bank, or the “lead managing underwriter.”

The syndicate buys the total number of shares offered for an amount equal to the stated offering price minus a percentage known as the “underwriting discount,” or “gross spread.” The syndicate is then responsible for selling the company’s stock in the open market and reasonably supporting the price until an equilibrium between buyers and sellers is attained.

If the investment banking firm that is acting as managing underwriter has a strong equity distribution capability, it will often underwrite 40% or more of an offering. The other syndicate members will underwrite the balance.

Each syndicate member is accorded an underwriting position based on its standing within the investment community and its capability in placing securities. Each syndicate member’s underwriting position is established by the lead managing underwriter depending on these criteria. However, each firm initially will be assigned a selling position of zero. Only upon responding to the lead managing underwriter with a specific request for a number of shares of stock will each firm be allocated a selling position.

Through this mechanism, and through experience with other similar offerings, it is possible to determine which syndicate member’s orders are strongest and most likely to be placed with long-term investors. Through this method of syndication, the lead managing underwriter can also control the distribution of stock and create a more orderly aftermarket.

The utilization of a syndicate provides a broader distribution for an offering and potentially provides the impetus for other brokerage firms to initiate trading and research coverage for a newly public company.

Balanced retail and institutional distribution

At Raymond James, we believe that an optimal distribution of an initial public offering can be achieved through an emphasis on balanced retail and institutional holdings coupled with an effective, professionally planned and managed marketing program.

The principal goals of such a marketing program are to achieve broad recognition for the company and to create sufficient excess demand for the stock, affording aggressive pricing and a strong aftermarket.

Critical factors for an initial public offering

Retail distribution is imperative to achieve optimum pricing, desirable aftermarket performance and a broad liquid market for the company’s stock. Institutional interest and ownership, in many cases, sets the tone for the valuation and trading of a company’s stock and can contribute to the retail interest in a particular offering. A broad-based source of demand, with both retail and institutional support, is important to provide a stable market for a company’s stock, particularly in an initial public offering.

Marketing of the offering

The marketing of a company’s initial public offering begins almost immediately after the filing of the preliminary prospectus with the Securities and Exchange Commission (SEC). As part of the marketing program, a company’s investment banker begins to form the syndicate and holds a series of meetings with retail and institutional investors.

These presentation meetings, known as “road shows,” are held in markets that are deemed necessary to marketing the issue, including designated target markets; the company’s local market, if possible; the major institutional markets in the United States and, if appropriate, overseas. Typical cities for Raymond James & Associates road shows include Tampa, New York, Boston, Chicago, San Francisco and Los Angeles, at a minimum.

The objective of creating the syndicate and holding the road shows is fourfold:

• Create a broad awareness of the company in the investment community,
• Create sufficient excess demand for the offering to allow aggressive pricing and a strong, orderly aftermarket,
• Effect the optimal distribution of the issue both geographically and in terms of institutional versus retail holdings, and
• Build long-term investor interest in the company.

The company’s involvement in the marketing program centers around the road shows. Each road show consists of a 30-minute presentation by company management, followed by a question and answer period.

The format of the presentation is developed between the company and its investment banker, with the presentations usually including an outline of the company’s business, its past history and, within the limitations of what the SEC allows before an offering, a description of the company’s future outlook.

Aftermarket support

Immediately following an initial public offering, an aftermarket develops for the shares of the company’s stock.

Once in public hands, the price for the company’s shares may go up or down on the basis of many factors, including ongoing demand for the stock, general market conditions and, most important, the company’s performance. Though the investment bank cannot be responsible for making a stock price go up or down, it can be very helpful in writing and disseminating research reports and in sponsoring timely investor meetings to help publicize a company’s positive achievements until the company’s stock finds its own equilibrium.

Further, an investment bank can and should provide its clients with ongoing advice regarding general market conditions, interest rate trends and any acquisition or financing alternatives that may be beneficial to a client company’s performance.

Beyond providing advice, research and publicity for a company, a well-capitalized investment bank can play a significant role as a market maker for a company’s stock. This role includes bringing together buyers and sellers, as well as standing by to purchase and disseminate large blocks of stock in a manner that does not disrupt the market price of a company’s stock.

By committing its capital to make a market for a company’s stock, the investment bank further promotes both trading and active investor interest in a stock.

An investment bank’s overall profitability and capital strength, as well as its commitment to the over-the-counter market in general, are necessary for the client company to assure itself that its offering will be well received by the investing public. Many securities firms have reduced or withdrawn support from the over-the-counter trading area to accommodate the increased trading volumes in other areas or to minimize their capital commitments due to the poor financial performance or instability of their own firm. Raymond James has not.

Anticipated timetable

The actual process of going public begins with an organizational/planning meeting known as an “all-hands” meeting.

At that time, the registration team, consisting of the managing underwriter(s), accountants, securities attorneys and key company management, will develop a detailed timetable for the offering. The timetable will cover the entire registration process from the first all-hands meeting to the anticipated closing date of the offering.

The managing underwriter will take the lead in developing the timetable, legal counsel will take the lead in drafting the registration statement, the accountants will take the lead in assisting with the financial statements and the company’s chief executive officer and the company’s management team will devote a substantial amount of time to drafting the registration statement.

The underwriter, the underwriter’s counsel and other professional advisors will critically review the registration statement during its preparation.

Sample timetable

Date	Action
X - 45	Organizational meeting
X - 35	Initial draft of registration statement distributed
X - 30	Initial drafting session
X - 30 to X - 1	Preparation of registration statement and underwriting documents, due diligence
X	Registration statement filed with SEC
X + 5 to X + 10	Preliminary prospectus circulated to proposed syndicate members Information meetings arranged
X + 15 to X + 30	Information meetings in selected cities
X + 30 SEC	comments received on registration statement
X + 35	Revisions supplied to the SEC
X + 40	Offering date
X + 47	Closing

Timetable assumes a 30-day SEC review; however, the period could be longer depending on the extent of the SEC’s review and comments.

Typical expenses

The major expenses of an initial public offering are the investment banker’s fees, legal fees, accounting fees and printing costs. In addition, there are registration and state filing fees.

The investment banker’s gross underwriting commission, or “gross spread,” for an initial public offering is typically 7% of the public offering price depending primarily upon the size of the offering. Final terms are determined at the time of pricing and will be the result of discussions with management concerning, among other things, underwriting discounts for recent offerings that are similar in size, by similar companies. Any variation within the suggested range will ultimately be based on the size and price of the offering, and the degree of difficulty encountered in marketing the issue.

Approximately 50% to 60% of the gross spread is paid to the brokers who actually sell the shares, 20% to 25% is paid to the investment banking firm itself and the balance is paid to the syndicate for expenses, as well as compensation for sharing in the underwriting risk.

The following additional fees are typical for an initial public offering:

Legal fees: Legal fees will vary considerably depending upon the circumstances surrounding each situation. Legal services generally include corporate “housekeeping” work related to the offering, the preparation and clearance of the registration statement, negotiation of the underwriting agreement and the preparation of closing documents. The fees vary, but typically range from $150,000 to $500,000.

In addition, the company will pay a fee for the legal work in connection with state-by-state “Blue Sky” filings and clearances. This expense is generally $25,000, but can vary depending on the number of jurisdictions where filings are made and the nature of the comments raised.

Accounting fees: Accounting fees will vary widely with the size of the company and the complexity of its operations. Fees may be somewhat lower if the auditors have conducted regular audits for the past few years and have just completed the company’s annual audit. They tend to be significantly higher if no prior audits have been conducted and new accountants are engaged at the time of the offering.

The accountants’ fees include their preparation of the financial statements, their services in helping to respond to SEC staff accounting comments, and their preparation and delivery of the “cold comfort” letter to the underwriters, which assures that information in the registration statement and prospectus is correct and that no material changes have occurred since its preparation.

Printing expenses: The registration statement and prospectus account for the largest portion of the printing expenses, which average $75,000 to $150,000. Expenses are significantly impacted by the length of the prospectus, the number of proofs and corrections made, and the number of prospectuses printed. Expenses will also be somewhat higher if color photographs are used in the prospectus.

Registrar and transfer agent fees: These are fixed fees, depending on the number of certificates issued and the number of certificates transferred. Fees are usually under $10,000, but this should be verified with the bank or banks the company intends to use.

Travel and other: The company can expect to incur a minimum of approximately $25,000 in other expenses in connection with an initial public offering. These may include unusual legal, accounting or printing charges and travel expenses incurred during the marketing phase of the offering.

In addition, there will be incremental ongoing expenses in the legal, accounting and investor communications areas as a result of being a public company.

The advantages and disadvantages of going public

To owners of private businesses, the decision to go public is one of the most important they will make in the life of their company. In making the decision, the principals should rely upon their own judgment and that of their advisors as they weigh the advantages, disadvantages and alternatives before proceeding.

The following is a general overview of the advantages and disadvantages that are associated with becoming a public company:

Advantages

Capital: The most persuasive benefit of going public is the increased access to capital, as well as the relatively favorable financing terms afforded by the public market. A public offering is an excellent way to accommodate growth by providing equity capital for increased inventories, receivables, facilities, equipment and long-term capital expenditures.

When a company goes public, financing is no longer limited to the profits generated from operations and bank borrowings. Even the most successful businesses are hard-pressed to stretch retained earnings and bank loans far enough to finance ongoing expansion or a major new investment.

In summary, going public can give a company the funds it needs to invest in acquisitions, expansion and facilities, without depleting the owner’s capital or the company’s store of ready cash used for daily operational expenses. Equally important to a firm with high growth prospects is the ability to secure the financial stability and balance sheet that will provide a defense against well-capitalized competitors and enable the company to aggressively pursue opportunities.

More capital: Once an initial offering is completed, and assuming the stock performs well, subsequent offerings will usually be readily accepted by the market so that additional equity capital can be raised on very favorable terms.

A successful public offering will also increase a company’s net worth and improve its debt-to-equity ratio. This, along with the increased disclosure and diligence required of a public company, will substantially improve the company’s credibility as a borrower, making it easier for the company to borrow funds in the future on more favorable terms.

A public company also has significantly more options available to it in terms of financing. The public debt and convertible securities markets are examples of favorable alternatives available only to publicly held companies.

A public company can use its own securities to finance acquisitions and expansions, as long as acquisitions can be made with equity rather than with after-tax profits. As a general rule, acquirees will not accept a minority equity position in a privately held company in exchange for their business, whereas this is a very common and attractive – from a tax perspective – alternative with a publicly held company.

Liquidity: Because it is difficult to place a value on a privately held company or to establish a ready market for its stock, such companies are often an asset without liquidity. Once a company goes public, however, its founders and principals have a more effective way of valuing and marketing that stock.

In all likelihood, the vast majority of the founders’ and principals’ net worth is tied up in the company. A public offering makes it easier for them to diversify their investments or simply provide capital for diversification or personal use.

Wealth: In most cases, a public offering will increase the value of a privately held company. The growth prospects and security of a public company are generally greater than those of a private firm. This higher value can translate into significant wealth for founders and principals.

Even if they don’t realize immediate proceeds by selling a portion of their existing stock during the initial offering, key individuals can use their publicly traded stock as collateral to secure borrowings for other investments. This opportunity is rarely, if ever, available to shareholders in privately held companies.

Prestige: Going public is an important measure of success for many companies and is recognized as a significant step in corporate growth.

Public offerings increase the company’s visibility in the community and in financial circles, and this greater visibility can generate new interest from customers and suppliers, as well as from financial and business associates. It can be particularly attractive to companies with high retail customer interaction or firms that can benefit from the increased publicity.

Carefully managed, this new prestige and higher visibility can be a real and ongoing asset.

Personnel: Offering stock as a benefit or as an option for employees, or simply making it available for their purchase, can be a powerful incentive for attracting and retaining quality personnel. In general, higher caliber management and employees can be obtained by a public company that permits the sharing of its financial successes with its employee/shareholders.

Disadvantages

Preparation: Going public is not a decision that can be implemented overnight. It can require several months or more of advance planning.

Few privately held companies are structured to handle the disclosure requirements of public companies. Before a company is ready to file a public offering with the SEC, substantial preparation and legal/accounting work is likely to be required. Written documentation for major financial transactions and customer arrangements will have to be supplemented and additional documentation may have to be prepared.

Companies with existing bylaws may have to amend to clarify them and those without bylaws will have to draft them. The minutes of all board meetings will have to be reviewed to ensure that the record is clear and complete. All contracts and agreements will have to be scrutinized carefully.

Certain leasing and licensing arrangements with shareholders may have to be terminated or amended. Similarly, internal agreements between multiple owners, or owners and key personnel, on voting rights and/or buying and selling rights will have to be forfeited. On the other hand, the company may also be advised to draft contracts for certain key personnel to ensure their continued employment and loyalty.

Some companies may also require some restructuring to accommodate the change from a private company to a public company. The capital structure must accommodate a large number of shares to be held by the public. In addition, special classes of stock that had been designed to meet specific financial and estate planning objectives of family members or principals are generally eliminated. Tax-oriented structures, such as “S” corporations, will also be eliminated, which may or may not have adverse consequences for existing shareholders.

Accounting procedures and relationships may have to be significantly upgraded to ensure compliance with statutory reporting deadlines, increased financial statement disclosure requirements and public comfort.

Although stock-based compensation can be a significant advantage to the company, the design of a program appropriate to furthering the company’s objectives can be difficult and expensive to develop.

Costs: In addition to the time and effort required to prepare for the filing and offering, a company must also be prepared to incur the cost of going public.

The principal costs include the underwriter’s compensation, legal and accounting fees, printing charges and transfer agent and filing fees. A company expecting to go public with a high-quality offering should anticipate spending spending between $400,000 and $1,000,000, excluding underwriter’s commissions. The magnitude of these costs usually makes public offerings grossing less than $25 to $30 million impractical.

Furthermore, principals must remember that there is no guarantee the offering will be a success. With the exception of underwriter’s compensation, the costs are incurred regardless of the outcome.

Ongoing expenses: The cost of going public does not stop with the initial offering. Other costs associated with being a public company are ongoing.

Management must devote time and money to new areas such as shareholder relations, public relations, public disclosures, periodic filings with the SEC and reviewing stock activity. All of this time, and the time of the personnel hired to handle these functions, would be spent on other management tasks in a privately held company.

There are also various out-of-pocket expenses. Shareholder meetings, annual and quarterly reports, public relations efforts, and legal, accounting and auditing fees must all be paid. The total cost of these expenses will vary from company to company, but in most cases they range from $50,000 to $150,000 annually.

Disclosure: In addition to the required disclosure of results of operations and financial condition, public companies must be prepared to disclose information about the company, the officers, the directors and certain shareholders. This information might include company sales and profits by product line, salaries and other compensation of officers and directors, as well as data about major customers, the company’s competitive position, any pending litigation and related party transactions.

By releasing the information, it will become available to competitors, customers, employees and the general public, and is required in the initial registration statement and updated annually through annual reports, 10-Ks, proxies and other public disclosure documents.

Pressure: Another disadvantage of going public is the internal and external pressures publicly held company management may feel to maintain earnings and growth patterns. These pressures are generally tied to the quarterly reports filed with the SEC and delivered to shareholders.

Because shareholders will, therefore, evaluate company progress quarterly rather than annually, management may be tempted to make short-term decisions at the expense of long-term profitability. In their efforts to anticipate the stock market and satisfy outside shareholders, management may begin to lose the operating flexibility it exercised before going public.

Loss of control: If a sufficiently large proportion of the company’s shares are sold to the public, the principals may be faced with the eventual loss of voting control of the company. The principals will also be required to maintain a fiduciary responsibility to the outside shareholders in regards to the decisions they make for the company, regardless of whether the principals retain a majority of the company’s stock. This responsibility will be under constant scrutiny and may limit the flexibility that the privately held company previously enjoyed.

There are conflicting considerations and risks in any serious business decision and the decision to go public is no exception.

If the company is of sufficient size and profitability and has competent management, it is likely that it will benefit substantially from a well-planned public offering.

As with any important decision, however, it is essential that the owners and principals of a private corporation carefully weigh the advantages and disadvantages in light of the plans and goals they have for themselves and their company. They should consider the alternatives and actively discuss the matter – much more thoroughly than this document can review – with their attorneys, accountants, investment bankers and other professional advisors.

Key issues for owner and management consideration

Management depth: One of the key criteria that the investment community utilizes in evaluating a company undertaking an initial public offering is the depth and experience of the company’s management team.

The management of the new public company will have new responsibilities and will face new challenges. In addition to managing the business of the company, management will have to deal effectively with SEC requirements, financial analysts, the financial press, public shareholders and professional advisors.

Investors will critically assess the company’s management team and will expect the team to have the experience and depth required to deal with its new responsibilities, as well as expand the company.

Over-the-counter trading versus exchange listing: A company should decide early whether to list its securities on a national exchange or to have its shares traded over-the-counter.

The principal advantages involved with exchange listing are generally lower transaction costs for investors and reduced state registration requirements and expenses. Additionally, the New York Stock Exchange in particular provides an enhanced level of corporate prestige. The over-the-counter market, on the other hand, tends to provide a more stable and liquid market since the combined capital of a number of market makers can exceed the funds available to a specialist on an exchange. Also, Wall Street research coverage is broader for over-the-counter companies, primarily because securities firms tend to research stocks they trade.

Composition and size of board directors: The election of several non-affiliated individuals to the board of directors prior to filing of the registration statement with the SEC should be considered.

The individuals selected as directors should have substantial business experience, corporate strategy perspective and an in-depth knowledge of the company’s industry or a similar industry. Once the public offering is complete, additional directors may be added to the board to supplement the expertise of existing directors.

Corporate charter provisions: A company should authorize sufficient common stock to result in at least a two-to-one or three-to-one relationship between authorized and outstanding shares. This provides future flexibility for stock issuances, splits, option plans, etc.

To further increase its financial flexibility, a new public company should consider authorizing a “blank check” preferred stock, allowing the company to issue preferred stock in series with voting, conversion and other rights as the board may determine.

A company should also consider including provisions in its charter designed to encourage fair treatment of shareholders and to defend against hostile takeover attempts that do not maximize shareholder value. One such provision might be to grant the board more time to evaluate and respond to a proposed transaction, recognize other factors that must be considered in such an evaluation and include other requirements such as “super-majority” voting and other similar features.

Stock split and potential recapitalization prior to an initial public offering: The objective of a stock split and recapitalization prior to an offering is to achieve the broadest investor appeal and enhance trading liquidity, while increasing the valuation available to existing shares.

Because investors will more easily understand a less complex balance sheet, steps to convert all equity or equity-oriented investments into common shares prior to an offering may maximize the overall value. Individual investors prefer lower-priced stocks because of the ability to buy a round lot – 100 shares – with fewer dollars. There is some image and institutional preference to have the stock above $10 per share. Therefore, a typical per share target is in the low teens.

The optimal stock split would result in a post-split price in the low teens – based on a conservative valuation –while simultaneously providing a reasonable safety cushion before the stock would drop below $10 per share.

Selection of transfer agent and public relations/ proxy solicitation firm: Various alternatives should be considered to increase a public company’s corporate visibility, assist in shareholder relations and help communicate with investors.

A company might consider the choice of a public relations firm, proxy solicitation firm or both.

The choice of a firm should be made on the basis of experience with the company’s industry, strong regional and national presence, and a perceived personality fit with the company.

A transfer agent should be selected on the basis of its reputation and its cost effectiveness.

Raymond James is committed to excellence

Raymond James, founded in 1962, has achieved national prominence while maintaining our local presence. This fact, along with our commitment to satisfying our clients’ financial needs on a long-term basis, makes Raymond James the firm of choice to assist you and your company in satisfying your public offering needs today and in the future.

Issues relating to going public

Existing corporate structure

• Proper incorporation of parent company and subsidiaries.
• Validity of issued and outstanding stock of parent company.
• Validity of issued and outstanding stock of subsidiaries and ownership by parent company.
• Foreign corporation qualification of parent and subsidiaries.
• Validity and documentation of material corporate actions taken.

Corporate rearrangements

• Analysis of present state of incorporation and possible reincorporation in Delaware.
• Possible recapitalization.
• Revision of charter and by-laws to reflect public ownership.
• Possible provisions of charter and by-laws:
• Indemnification.
• Shark repellents.
• Additional authorized common.
• Authorization of series (“blank check”) preferred.
• Fair price/super majority provision.
• Staggered board of director’s terms.
• Modify shareholder agreement (e.g., buy-sell or voting, voting trust provisions or venture capital arrangements) to the extent appropriate for public company status.

Board of directors, management and employee relations

• Board of directors:
  • Selection of outside directors.
  • Directors and officers insurance.
  • Depth and continuity of management.
  • Investigate need for employment contract agreements or other provisions to assure retention of key personnel.
  • Consider adoption of employee stock option, ownership or purchase plans to provide appropriate incentives to employees.

Insider dealings

• Identification and possible restructuring of insider transactions:
  • Customer or supplier relationships.
  • Leases of facilities.
  • Partnership arrangements.
  • Other relationships.
• Minority interests in subsidiaries.
• Cheap stock, loans or excessive options (“Blue Sky” problems).

Accounting

• Selection of recognized auditors.
• Audited financial statements for requisite period.
• Segment reporting with appropriate backup.
• Identification of any particular accounting problems.

Due diligence and disclosure

• Compilation of corporate records.
• Identification of material contracts, litigation, etc.
• Identification of particular disclosure problems:
  • Potential sensitive or confidential information or exhibits.
  • Material contingencies.
  • Other material or sensitive disclosure questions or developments.
• Regulatory requirements or questions.

Potential selling shareholders

• Secondary shares in offering.
• Contractual registration rights.
• Lock-up after offering.

More information

For information about Raymond James’ public offering capabilities and to contact us, please click here.

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