In an April 13, 2010, Businessweek article it was announced that the head of equities for TMX Group Inc. That operated the Toronto Stock Exchange and the TSX Venture Exchange had high hopes for the Canadian IPO or initial public offerings market and believed it could top CAD 6.4 billion for the year. This amount he said would be the highest in over a decade and the new issue pipeline reflected the belief the recession is over as stocks and the economy rebounded. At the end of May, a Reuters article noted that while a number of Canadian companies were ready to go public, a handful would expose themselves to the market due to the recent turbulence. Despite this, investors at the annual Canadian Venture Capital and Private Equity Association meeting in Ottawa remained upbeat about the prospects of the IPO market. The question whether should IPO investor look for long term or short term gains depends on whether investors are in for short term profits or long term gains. Given the volatility of the market, the latter may be the more prudent approach.

There is also a global push for increasing of listings on the Canadian equities market. This is exemplified by the example of the North Carolina based online publisher Lulu that chose to bypass the U. S. Stock exchanges and go public in Canada instead. Of course, the company CEO is no stranger to Canada having grown up in Canada. But, the fact that only 2 companies went public in the US in 2009 might be a reason for this choice. It can be less costly to List a stock in Canada, which can involve a less regulatory scrutiny than a US listing. The health of the Canadian market was reflected in the largest amount raised since 1999 that was raised this March by Athabasca Oil Sands Corp. Which sold 75 million shares at CAD 18 each, raising CAD 1.35. This was the richest debut since 1999, when Manulife Financial Corp. Raised CAD 2.48 billion.

The Toronto Exchange and the TSX Venture Exchange are the eight largest exchange group in the world. They host the majority of publicly held mining companies, more oil and gas companies than any other exchange, the second largest group of listed companies and technology companies and the largest group of public clean technology companies. Canadian indices have outperformed world benchmark indices according to stats from 2002-2006.The World Economic Forum has listed Canada for two straight years as having the safest and most sound financial system in the world. Over 50 percent of Canadians are equity owners reflecting a high equity ownership culture. Listing in Canada is a sound choice.

An Initial Public Offering is an important juncture for a company. The injection of capital brings funds to grow and thrive. The stakes are also high for the other parties involved. Company owners and managers, the venture capitalists who may have invested in the firm, and investment bankers who underwrite the sale have an interests on a profitable IPO. Generally, institutional investors typically constitute purchasers of about 75 percent of an issue. A successful offering depends on attracting a sufficient investor interest. This in turn is affected by the stock market. Offerings may be put off or scrapped if there is insufficient amount of investor interest. Generally in valuation there three basic approaches that can be classified as the Cost Approach, the Income Approach or the Market Approach. The Cost Approach focuses on what was spent on the valuation object plus or minus a discount or premium as the case may be. The Income Approach focuses on the cash flow generated from the object of valuation. The Market Approach places emphasis on what someone is willing to pay for such an item. Fair Market is the generally accepted standard for IPO valuation. In addition to these three, another approach that has gained prominence in recent years is the use of option pricing techniques. Business valuation models can also be constructed that use different methods under the three business valuation approaches. For instance, venture capitalists and private equity specialists have long used the First Chicago method which combines the income approach with the market approach. Generally they can be specified as discounted free cash flow reflecting the income approach, the dividend discount method reflecting the cost approach, price to earnings, price to cash flow and other multiples valuation methods reflecting the market approach. Valuation based on multiples is more weighted by market and the discounted cash flow reflects business dynamics. It has been found that when investment bankers apply multiples valuation and use forecasts of future cash flows and earnings, they are more accurate than multiples based on those metrics the year of IPO issuance. It has also been found that variations in methodology produce similar accuracy, although, the dividend discount model can underestimate value.

The Process

Companies that go public on a stock market in Canada become a reporting issuer with one or more of the Provincial Securities Commissions. The process of going public involves three stages: preparing to go public, going public and life afterwards as a public company. Going public can bring strategic advantages and also associated costs such as the costs of compliance, costs related to a new governance structure and need to be responsible to shareholders. The benefits include the capital to grow and evolve, provide greater flexibility for execution of strategy, a means to monetize and provide liquidity and wealth to shareholders for their investments in the company, increased market value and the stature and security of a public company and the ability to attract and retain talent with share plans that are liquid. The costs include compliance costs, the increased infrastructure such as board and audit committees, being open to regulatory scrutiny, some loss in decision making flexibility, pressure to perform, stock market swings can effect share value and employee morale and restrictions on trading and the discussion of internal affairs. Generally an IPO process takes a little over 3 months or about 100 days to complete.

To make this process as smooth as possible you need to get organized by bringing inhouse order, begin to manage like a public company, develop a public profile, retaining key professional advisors and considering IPO options about the exchanges to be listed on. Bringing order includes crating a realistic business plan, reviewing internal processes and contracts, evaluate related party transactions, retaining an auditor and addressing tax issues and develop several years worth of financial statements, evaluate litigation and potential claims and review of the strength of the management team. As International Reporting Standards, acronym IFRS, will be applied in Canada from January 1, 2011 confer with the auditor to ensure system can provide information that will need to be supplied. Public companies are expected to provide detailed discussions of their preparations for the changeover in their periodic filings and to track IFRS financial information during 2010, to be able to provide the required one year of comparative financial data in 2011 financials.

Companies can go public and become reporting issuers through a prospectus. There are two types of prospectus. One is an offering prospectus that is used in a public sale or a non-offering prospectus that is not used in a public sale. The IPO prospectus is of the former type. Both these types of prospectuses must contain full disclosure about the company for the information of investors and the public.

The IPO How or How to IPO

The following are the basic procedural steps that are undertaken. The Board approves an initial public offering and engages an underwriter. There is primary due diligence conducted by the underwriter and the auditor. Begin the drafting of the preliminary prospectus. The Board approves the prospectus. Filing of the preliminary prospectus and other material documents. Printing of commercial copies of the prospectus. Receive and respond to comments from securities regulators. Do a dry run of a road show preparation. Meet with institutional and retail investor groups. Pricing of the initial public offering. The final due diligence session. Board approves the final prospectus. Filing of the final prospectus and the exchange listing agreement. Printing of commercial copies of the final prospectus. The offering is closed and the trading period commences. It is not unusual to see the froth of exuberance with an IPO Canada announcement. As time goes on and the more company plans and finances are considered, the price may go down. Whether the shares will fall below their IPO or initial public offering price in the coming days is a possibility as share prices can plunge after the company is publicly launched initially.

Author Bio: In order to grow and expand, many companies will go through the IPO process and make an Initial Public Offering (IPO) to the general public. A new IPO valuation is usually made, and Canadian IPOs are becoming more common nowadays.

Category: Business
Keywords: IPO, business, public, list company, money, financial, society, initial public offering,investor