The success of an initial public offering (IPO) is not an overnight affair.

A company's dream to go public does not just involve groundwork but also
skill and experience of the advisors to the public issue. The merchant
banker or lead manager is entrusted with the task of managing an IPO and
their rights, obligations and responsibilities are more or less included in
the regulations that govern public issues -- the SEBI ICDR Regulations,
arrangement with the company, due diligence certificate, pricing of the
issue, advertising the issue, underwriting services etc., to name a few.

In fact, the role of the merchant banker continues until completion of the
issue and till the company obtains the listing and trading permission. The
merchant bankers must also look into the post-issue activities such as
dispatch of refund orders, allotment letters, share certificates, coordination
with the intermediaries and other activities relating to the investors and
regularly monitor redressal of investor grievances arising therefrom.

However, the role of a merchant banker goes beyond the mere wordings of
the regulations. No doubt an issuer company offers a myriad of
representations to the merchant bankers about the company, the fate of the
IPO depends on how the issue is positioned in terms of size, timing,
valuation and marketing of the issue.

Having said that, choosing the right merchant banker is critical to the
success of the IPO. This is typically done through the 'pitch meetings.
Other factors relevant to the selection of the merchant banker is the bank's
track record, reputation and most importantly the relationship with
institutional investors. This helps in an easier mobilisation of funds and
success of the IPO.

Benefits of effective transaction structuring

The key ingredients to an effective IPO transaction structuring include,
deployment of right resources, understanding and preparing a business and
financial model, due diligence exercise, agreed on timelines, investor
relations and marketing strategy, amongst others.

Due-diligence responsibilities
In an IPO, both the merchant banker and legal advisors conduct diligence
on the affairs of the company, which involves reviewing of contracts,
licenses and approvals and other material documents. Once the diligence is
done, the material is formatted into chapters and then added to the offer
document.

At their end, merchant bankers conduct a market and industry diligence to

obtain a fair sense of what may be in store for the company in the future.
The merchant banker also conducts a tax and financial diligence on the
company to identify any irregularities. Providing solutions to eradicate any
non-compliances or irregularity becomes an integral part of the diligence
exercise. All these actions are supplemented by the guidance that is
offered by the merchant bankers and legal advisors in relation to the IPO
process.

SEBI co-ordination for disclosure and timelines

The next step is filing the offer document by the company with the help of
the merchant banker. The merchant banker then co-ordinates with SEBI at
different levels, more particularly if the regulator calls for any
clarifications or any additional information or documents.

The merchant banker is responsible to ensure that all SEBI observations on

the draft offer document have been carried out by the company before its
registration with the registrar of companies. Before the opening of the
issue, the merchant bankers submit various documents such as the
diligence and other certificates as required by the SEBI ICDR Regulations.

The role timing and sizing plays in the success of an IPO

The timing of the IPO plays a very important role in its success. Weak
market conditions and poor timing of the IPO can jeopardise the issue
completely.

Recently, we have witnessed undersubscribed IPOs and withdrawal of

issues, all of which may be attributed to unfavourable market conditions.
The merchant banker can always keep a track of the factors that adversely
affect the market conditions particularly the events that directly affect the
receptiveness and decision of the investors.

Preparing early for an IPO can help mitigate such risks during which time
the company and the merchant bankers can analyse the market conditions,
preparedness and performance of the company so that they could be ready
with an alternative plan of fundraising in case the IPO is not feasible in the
near future.
These alternative plans include a third party sale, private equity
investment, private placement or even a joint venture or a strategic
alliance. It always helps to have a plan B. Also, if an IPO is timed
appropriately, it is possible to price the IPO at a higher price of the range.

Key factors influencing positive valuations for the IPO

The price of the shares in the IPO is determined by the company in
consultation with the merchant banker, usually on the basis of demand
from investors.

The price is generally arrived at through a book building process in case

the valuation of shares arrived at by the company and merchant bankers do
not represent the true market value of shares. The valuation is arrived at on
the basis of certain qualitative and quantitative factors that include earning
per share, price earnings ratio, return on net worth, net asset value,
comparison of accounting ratios with listed industry peers, etc.

In case of fixed price issue, the company itself fixes the price of the shares
in consultation with the merchant banker. This method also deploys the
same qualitative and quantitative factors to arrive at the price but is devoid
of any investor demand. Pricing shares of an IPO is generally risky
business as it lacks a historical performance history.

Guidelines for marketing the IPO

The publicity and marketing of the IPO is another important service
provided by the merchant banker through various investor meets once the
offer document is filed with the regulator. Here too, there is a selection
criteria such as brokerage commissions, interest and track record of the
investors.

The response received from the investors plays a vital role in the pricing of
the issue. The merchant banker organises road shows during which the
management of the company travels to different parts of the world to meet
investors. A roadshow provides the company with an opportunity to
convince the potential investors to invest in the company.

A basic principle that must be followed while marketing an IPO is how

well the company differentiates itself from the competition. To realise this
objective, the right marketing strategy is a crucial aspect of an IPO plan.
The merchant bankers need to clearly define the target audience. They
may not be interested in the company's business model alone but on how
they can actually make money by investing in the company. A well
demonstrated and realistic forecast of the company's growth potential is a
must for the IPO success.

SEBI co-ordination for disclosure and timelines

The next step is filing the offer document by the company with the help of
the merchant banker. The merchant banker then co-ordinates with SEBI at
different levels, more particularly if the regulator calls for any
clarifications or any additional information or documents.

The merchant banker is responsible to ensure that all SEBI observations on

the draft offer document have been carried out by the company before its
registration with the registrar of companies. Before the opening of the
issue, the merchant bankers submit various documents such as the
diligence and other certificates as required by the SEBI ICDR Regulations.

The role timing and sizing plays in the success of an IPO

The timing of the IPO plays a very important role in its success. Weak
market conditions and poor timing of the IPO can jeopardise the issue
completely.

Recently, we have witnessed undersubscribed IPOs and withdrawal of

issues, all of which may be attributed to unfavourable market con
Promoter identification,
percentage to dilute
Total valuation,
Book building
sebi icdr limits,
identification of merchant bankere
and legal counsel, ILC
Accounts legal cases regulatory
Board structure
LODR Board policy, committee, directors details, comfirmations
ICDR lock in
Ind as, restatement 5 years, audit
Stat auditor ceritifcatuon
and comfort letters
Data room for upload
Underwriting..not mandatory
DRHp
Roadshows
Stamp duty Nil
Share cap increase
Designated stock exchange
Inauguration hall booking
Bankers and insurers meeting..aum cap
Management callls and close down calls
SPV auditor comfort letters
Circle up
BG and security deposit.icici
Bidding centres
Printers.. roadshow collaterial drhp forms
FIRC and RBI filing allotment advice refund advixe
Corporate film
Agreements..underwriter stock exchange printer escrow
Statutory ad..price band..issue opening closing allottment regisrar ad
agency
DD..legal insurance approvals DD calls
NOC from lenders
POSI policy Howden Tata
Media compliance report
Post issue report

Team:
Ca..S Anantha 0222591 3041
Cs..
Industry report..crisil

HSF herbert Smith freehills siddhartha jin kong rohit anand

Khaitan Sudhir Bassi soumya mohapatra ashima gulati Navodita Gupta

Bharucha & Partner...aditya anand aditya iyer ajay Vishnu anand mehul
jain achutan 9322270180 mehul jain

Inga..Ganesh kavita shah 98675 01267 disha doshi kunal thakkar

Investec Rambo aditya anand
Srei ashok manoj samita
Sebi..abhiskek
Karvy..murali Gopal
Inga Ganesh Kavita
Escrow bank..HDFC
Printer orient press suhas more 022 4028 5827
BSE Bhushan Mokashi 98209 68848 chandresh sharma
Agency concept Sanjay Lohia Nayan shah
CDSL
NDSL

Aditya Iyer 
Associate
Bharucha & Partners
Hague Building | 9, S.S Ram Gulam Marg | Ballard Estate | Mumbai 400
001 | India
Boardline: +91 22 6132 3900
Fax: +91 22 6633 3900
Mobile: +91 9987701065
E-mail: aditya.iyer@bharucha.in
www.bharucha.in

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