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The timeline of an IPO

James Gard  |  09 Apr 2021Text size  Decrease  Increase  |  
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Deliveroo (ROO) begun trading on the London Stock Exchange, after shares slumped in conditional dealing last week, taking the shine off one of the most high profile IPOs in London in many years. The Deliveroo IPO was available to retail investors, who were able to buy shares ahead of the first day’s trading – but only if you were a customer of the food delivery company. 

We’ve previously discussed how IPOs work from a company’s point of view, but let's look today at the rough timetable works from an investor’s perspective. The sequence of events can be confusing and can be different for each company – but the process follows a roughly similar sequence each time.

The timescale has to balance the needs of investors, giving them enough time and information to make a decision, as well as the company and its backers – who want to drum up sufficient interest in the the event and make sure the shares are fully subscribed.

Behind the scenes, a great deal of work occurs to get the company to this stage – but this doesn’t usually trouble the small investor, who is most interested in what happens next. Bear in mind that these timescales are fluid, so a company can decide to go live earlier than expected too.

Stage 1: Intention to float

This is the equivalent of a starting gun being fired, with the company making an official announcement of an “intention to float”. In Deliveroo’s case it made an “expected intention to float” notice on March 7, 2021 followed by a confirmation on March 15.

Stage 2: The Publication of the prospectus

At this stage, the company is hoping to create a buzz around its IPO. It publishes a prospectus, which is designed to market the company’s prospects in the best possible light.

Pre-internet, a glossy brochure would arrive through the post touting the company’s wares and a prospective investor would have plenty of time to flick through it. Nowadays companies assume you can access the information quickly and electronically. Not all IPOs keep an allocation of shares for retail investors though. For Deliveroo, the prospectus was published on March 22, the same as the announcement of the price range.

Stage 3: Price range

This is a key stage as it gives investors an idea of the range of the price at which the company's shares will list. This indicates the valuation of the firm at the point it goes public. This is usually accompanied by a notification about how many shares will be issued – as the founders/backers will be selling a percentage of the company rather than the whole lot. After all, they want to participate in the future success of the company they built.

Stage 4: Price and allocation is confirmed

This is important as it gives an idea of how much demand there has been for the shares since the price was revealed. Usually this will be reported as the IPO “being priced at the bottom/top of the range”.

A float priced near the top often tees up a successful first day's trading for the shares at least. Those investors who have been successful in getting some or all of the shares they applied for will be notified at this point.

Stage 4: Conditional dealing

Here’s where it gets interesting: conditional dealing is where the shares start trading before they hit the stock market - this isn’t the actual IPO itself. Some shares jump at this stage. For example, in the UK, Dr Martens was priced at £3.70 but rose above £4 in conditional dealing. Others fall below the offer price: Deliveroo shares were offered at £3.90 but sank to £2.90 on the first day of conditional dealing.

This is the time that institutional investors like fund managers and pension funds start trading the shares. Retail investors can’t buy or sell at this stage, but these trading days do offer an insight into the demand and pricing levels ahead of the next stage. Conditional dealing typically lasts three trading days and the price the shares reach tees up the next stage.

Stage 5: Unconditional dealing

This is D-Day, when the shares go live and any investor can get involved. Curious investors may note that the price on the first isn’t the same as the “offer price” – this is because demand for the shares may have moved the price in the interim (as was the case with Deliveroo). In fact, AJ Bell reckons the average difference between the offer price and the first-day price is around 12 per cent - one recent float, cannabinoid products maker Cellular Goods (CBX) even rose 300 per cent from offer to launch price. Deliveroo's unconditional dealing started on April 7, a month after the first notice of the intention to float, and shares rose slightly to around £2.86, still way below the initial offer price of £3.90 - and a long way off from the top of the original price range at £4.60.

is senior editor for Morningstar.co.uk

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