Marketing the Offering Toward the end of the waiting period, the underwriters will begin to market the IPO shares. The only written sales materials that may be distributed during this period are the preliminary prospectus (which must include an estimated per-share price range for the IPO), additional materials known as “free writing prospectuses,” which must satisfy specified SEC requirements, and any written test-the-waters communications described above. While binding purchase commitments cannot be accepted during this period, the underwriters will receive non-binding indications of interest from potential investors, indicating the price they would be willing to pay and the number of shares they would purchase at various price levels. Once SEC comments are resolved, or it is clear that there are no material open issues, the issuer and underwriters will undertake a one- or two-week “road show,” during which company management will meet with prospective investors. As noted above, an issuer must publicly file the confidentially submitted registration statement, along with any amendments, at least 15 days before commencing the road show. Once SEC comments are cleared and the underwriters have assembled indications of interest for the offered securities, the Company and the underwriters will request that the SEC declare the registration statement “effective” at a certain date and time, usually after the close of business of the U.S. securities markets on the date scheduled for pricing the offering. Pricing, Closing and the Post-Effective Period Once the registration statement has been declared effective, the underwriters will set the IPO price (in consultation with the company), at which time they will be able to accept binding purchase commitments. On the date of pricing, the company and the underwriters will also execute the underwriting agreement, and the auditors will deliver the comfort letter. The company’s shares will begin trading on the applicable stock exchange on the first trading day following pricing. Within two business days of pricing the IPO, the company must file a final prospectus with the SEC that contains the final offering information, including the price to the public and the gross and net proceeds actually raised. On the closing date, the company issues the shares and receives the net proceeds after underwriting discounts and commissions. Then, for the next 25 days, after-market sales of shares by dealers must be accompanied by the final prospectus or a notice with respect to its availability. If, during this period, there is a material change that would make the prospectus misleading, the company must file an amended prospectus—a very rare outcome that transactions participants avoid to the greatest extent possible. In addition, in order to ensure an orderly market for the IPO shares, after the shares are priced and sold, the underwriters are permitted in many circumstances to engage in certain stabilizing transactions to support the stock. Typically, the company will grant the underwriters a 30-day option to purchase up to an additional 15% of the shares offered in the IPO at the IPO price, less discounts and commissions, to cover overallotments resulting from selling more shares in the IPO than they are required to purchase from the company. This option is referred to interchangeably as the “greenshoe,” the “shoe,” or the “overallotment option.” “Covered” short sales are sales made in an amount not greater than the underwriters’ overallotment option described above. Depending on the post-IPO trading price, the underwriters may close out any covered short position by either exercising their overallotment option (if shares trade up after the IPO) or purchasing shares in the open market (if shares trade down after the IPO). 2024 Guide to REIT IPOs and Listing Transactions | 18
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