The level and type of due diligence review for an IPO will depend on factors such as the nature of the company’s business, industry and risk profile, as well as the jurisdictions where the securities will be offered.
Some common elements of IPO due diligence include:
- The company producing documents in response to a comprehensive due diligence request list which underwriters’ counsel prepares
- The company’s auditors preparing and delivering a comfort letter to the underwriters containing certain assurances about the financial information contained in the offering documents
- When required, the company’s chief financial officer delivering to underwriters a certificate to provide “management comfort” on specified financial information in the offering documents that falls outside the scope of the auditor’s comfort letter
- The company producing materials in response to underwriters’ requests for documentation of data included in the registration statement and prospectus that the company’s auditors have not provided comfort on, or that have not been otherwise vetted through the diligence process (also referred to as back-up requests)
- Underwriters or their counsel conducting interviews with the company’s management, auditors, and potentially other third parties (such as the company’s advisors, customers, suppliers and/or collaborators)
- Executive officers, directors and certain principal security holders of the company completing questionnaires for the company and the underwriters
- Underwriters or their counsel conducting other types of financial and business due diligence, which may include, for example, a review of budgets, projections, historical financial information or competitive conditions, or site visits to the company’s facilities
The bulk of the due diligence work is conducted prior to the first confidential submission or filing of the registration statement, followed by updates through the closing of the IPO.
For company management, the most labor-intensive part of the due diligence process is typically collecting and assembling the relevant materials in response to the due diligence request list and back-up requests.
In order to streamline this process, often a company will make many of these materials available to the project team in an electronic data room.