How Does an IPO Work?
An IPO moves through eight stages: choosing underwriters, due diligence, filing a registration statement with the SEC, responding to SEC review, marketing on a roadshow, collecting demand through bookbuilding, pricing and allocating the shares, and finally trading, stabilization and lock-up expiration. The formal execution phase typically runs about 16 to 20 weeks or more from the organisational meeting to closing, with readiness work beginning well before that.
The lifecycle at a glance
| Stage | What happens | Who drives it |
|---|---|---|
| 1. Underwriter selection | Banks pitch; the company picks bookrunners | Company |
| 2. Due diligence and drafting | Financials audited, registration statement written | Company, counsel, auditors, banks |
| 3. Filing | Confidential draft submission, then public S-1 | Company and counsel |
| 4. SEC review | Comment letters, amendments | SEC staff and company |
| 5. Marketing | Roadshow with the preliminary prospectus | Management and bookrunners |
| 6. Bookbuilding | Demand collected, price range revised | Bookrunners |
| 7. Pricing and allocation | Final price set; shares allocated | Company and bookrunners |
| 8. Trading onward | Opening auction, stabilization, lock-up expiry | Exchange, underwriters, market |
How does a company choose its underwriters?
Banks pitch for the mandate in a process known as a bake-off, each presenting its view of valuation, positioning, comparable companies and distribution reach. The company appoints one or more bookrunners — the lead-left bookrunner runs the process and appears leftmost on the prospectus cover — plus co-managers who broaden distribution and, later, research coverage.
The order of names on that cover signals economics and responsibility, and is one of the first things worth noticing on a final prospectus. See IPO underwriters.
What happens during due diligence and drafting?
Counsel, auditors and the banks examine contracts, litigation, intellectual property, revenue recognition, related-party dealings and customer concentration. The underwriters have an incentive beyond thoroughness: Section 11 of the Securities Act imposes liability for material misstatements in the registration statement, and the due-diligence defence has to be earned.
In parallel they draft the registration statement on Form S-1, or F-1 for a foreign private issuer, which contains the prospectus — the business description, risk factors, MD&A, audited financial statements, capitalisation, dilution, executive compensation, principal stockholders, and a description of the offering. See what is an S-1? and how to read an IPO prospectus.
Why do companies file confidentially first?
Most issuers submit a draft registration statement non-publicly before filing publicly, a facility opened to emerging growth companies by the JOBS Act in 2012 and later extended more broadly.
Confidential submission lets a company begin SEC review without showing its financials to competitors, and lets it abandon the process without a public record of having tried. The draft submissions are published later, when the company files publicly — which is why some IPOs appear to materialise suddenly. The work was done; it was not visible. See confidential IPO filings.
What does the SEC actually review?
Disclosure compliance, not the merits of the investment. Staff issue comment letters; the company responds and files amendments on Form S-1/A. Several rounds are normal, and both sides of the correspondence eventually become public on EDGAR.
Registration statements are not on an automatic countdown to effectiveness. Issuers customarily include a delaying amendment and then request effectiveness when the deal is ready to price, so timing depends on how quickly comments are resolved and when the market window opens.
Communications about the offering are restricted during this period. This is loosely called the "quiet period," though the SEC notes the securities laws do not define a single period by that name. See the IPO quiet period.
What is the roadshow?
Roughly one to two weeks of institutional meetings, conducted with a preliminary prospectus in hand — the "red herring," named for the red-ink legend on its cover stating the registration statement is not yet effective. It carries an indicative price range and share count; neither is final.
Emerging growth companies may also conduct testing-the-waters meetings with qualified institutional buyers before filing publicly, to gauge appetite early. See red herring prospectus and testing the waters.
How does bookbuilding set the price?
The bookrunners collect indications of interest — how many shares each investor wants, at what price. The book is a demand curve the banks assemble and interpret, not a binding order queue.
Strong demand pushes the range up and the deal may be upsized; weak demand brings the range down, shrinks the size, or kills the deal. Range revisions appear in amended filings and are one of the better real-time signals available on a live deal.
Medline's December 2025 offering shows the upside case: it launched marketing 179 million shares at $26–30 and priced an upsized 216 million shares at $29. See IPO bookbuilding.
What happens on pricing night?
After the close on the evening before trading, the company and bookrunners set the final offer price and size, the registration statement is declared effective, and the final prospectus is filed on Form 424B4 — the first document in the sequence carrying real numbers rather than estimates on its cover.
Then shares are allocated. This is a discretionary decision by the underwriters, not a pro-rata fill. Allocations weight toward institutions the banks expect to hold rather than flip, toward existing relationships, and toward any cornerstone investors who committed in advance. See S-1 vs. 424B4 and IPO allocation.
What happens on the first day of trading?
Trading does not begin at the offer price. The exchange runs an opening auction that matches accumulated buy and sell interest and produces an opening print. On the NYSE a Designated Market Maker publishes indications and manages the open, which can occur well after 9:30 a.m.; on Nasdaq the IPO cross runs through a display-only period before launching. See the IPO opening auction.
What happens after the first trade?
- Stabilization. Underwriters may support the price under Regulation M, primarily by covering a short position created through over-allotment.
- The over-allotment option. Commonly up to 15% of the base deal — FINRA Rule 5110 treats anything larger as an unreasonable underwriting term — and typically exercisable for 30 days under the terms disclosed in the prospectus. The mechanism is called a greenshoe, after the Green Shoe Manufacturing Company's 1963 IPO, the first to use it.
- Research coverage. FINRA Rule 2241 imposes a minimum 10-day post-IPO quiet period on members that participated in the offering. Emerging growth companies are exempt, so for most modern US IPOs syndicate analysts can publish immediately.
- Lock-up expiration. Insider selling restrictions lift, customarily around 180 days after the offering, though staggered releases and price-based early triggers are increasingly common.
- First earnings. The first quarterly report is where the market tests the story told on the roadshow.
See greenshoe option and the IPO lock-up period.
What does the company control, and what does the market decide?
| Controlled by the company | Set by the market |
|---|---|
| When to start, and whether to continue | Whether demand exists at the indicated range |
| Which banks and advisers to hire | The first trade price |
| The story, the disclosure, the use of proceeds | Where the stock settles after day one |
| Share classes and governance structure | How research and index providers treat the listing |
| Whether to accept the final price |
A company can withdraw at any point before pricing, and many do — sometimes after months of preparation. A withdrawal is filed on Form RW and is public. See withdrawn and postponed IPOs.
Can the price change after the roadshow starts?
Yes, in either direction, and it frequently does. If demand is weak the deal can be repriced lower, downsized, postponed or withdrawn. The range revision appears in an amended filing, so it is visible before pricing rather than only afterwards.
Related
What is an IPO? · IPO process: step by step · How long does an IPO take? · How much does an IPO cost? · The IPO filing lifecycle · Glossary
Sources
- NYSE IPO Guide — execution timeline and opening auction
- Nasdaq listing and IPO process materials — the IPO cross
- SEC — Securities Act registration and review; SEC guidance on the "quiet period"
- FINRA Rule 5110 (underwriting terms, over-allotment); FINRA Rule 2241 (research)
- Regulation M — stabilization
- JOBS Act of 2012 — confidential submission and testing the waters
- Issuer filings on EDGAR — S-1, S-1/A, 424B4, RW