How IPOs Work: Process, Pricing, Timeline
How IPOs work: underwriter selection, S-1 filing, roadshow, bookbuilding, pricing, stabilization, and the quiet period. The ECM flagship deal end to end.
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An IPO takes a private company public in five stages: pick underwriters, file the S-1 registration with the SEC, market the shares on a roadshow while building the order book, price the night before trading, then stabilize the stock and observe a 25-day quiet period. CFI breaks the process into exactly those five steps. The catalog version takes three to four months from kickoff to listing day, though the final sprint from roadshow to pricing runs one to two weeks.
TL;DR
- Underwriters are picked and signed months before any public filing.
- The S-1 registers the business, financials, risks, and share count with the SEC.
- The roadshow builds the order book that sets the offer price.
- IPOs are usually underpriced, so first-day demand runs hot by design.
- A 25-day quiet period follows listing before analysts publish freely.
How does a company prepare to go public?
Preparation starts with the syndicate. The company selects a lead bookrunner plus co-managers to spread risk and widen distribution, then signs engagement letters covering fees and the 15 percent overallotment option, per CFI. Lawyers and accountants join at once: audited financials get rebuilt to public-company standards, governance gets repaired, and the S-1 registration statement takes shape with the business description, financials, management backgrounds, risk factors, and ticker. Underwriting comes in three flavors: firm commitment, where the banks buy the whole issue; best efforts, where they sell what they can; and all-or-none, where the deal dies unless every share sells. Most large IPOs are firm commitments, which is why the banks diligence so hard before signing. For the desk that runs this deal, see our equity capital markets guide; ECM is a product group that executes across every industry, and the coverage versus product groups breakdown shows how it pairs with sector coverage bankers on the same mandate.
Valuation · try it first
A founder wants to raise money without giving up any ownership. Which desk takes the mandate, what does it sell instead of shares, and what does the issuer owe that it would never owe in an IPO?
What happens on the roadshow?
The company and its bankers tour institutional investors for one to two weeks, pitching the equity story ten times a day while sales desks collect orders into the book. Nasdaq describes a typical five-to-nine-day run of management meetings where investors indicate interest for IPO day. The red herring prospectus, preliminary because it omits price and date, is the marketing document; the cooling-off rules limit what else the company may say. A book oversubscribed two to three times counts as a good IPO, per CFI, because that depth lets the banks price with confidence. Pricing happens the night before trading: the company and leads set the offer price and share count from the book, market conditions, and the company's funding goal.
Behind that number sits a comps exercise. Before the red herring prints a range, the syndicate values the issuer against listed peers on multiples like EV/EBITDA and price-to-earnings, cross-checks with a DCF, and marks an IPO discount into the range so the book has room to build. The mechanics are the same comparable company analysis run in every group, quoted in the EV/EBITDA conventions analysts use daily; the ECM twist is converting implied equity value into a per-share range tight enough to market but loose enough to fill the book. The client-facing version of that range is the football field, and readers who want the rep at interview speed can run it in the valuation comps practice set.
| Stage | Typical window | What decides it |
|---|---|---|
| Underwriter selection | Months before filing | Distribution, sector record, fees |
| S-1 and SEC review | Six to twelve weeks | Disclosure quality, comment letters |
| Roadshow and bookbuild | One to two weeks | Investor demand in the book |
| Pricing | Night before listing | Book depth, market, funding goal |
| Stabilization | First trading days | Underwriter support bids |
| Quiet period | 25 days after listing | SEC rules, then research resumes |
Valuation · try it first
Listed peers trade at a median 8.0x EV/EBITDA. The issuer generated 60 million dollars of LTM EBITDA, carries 80 million dollars of net debt, and will have 50 million diluted shares after the offering. What enterprise value does comps imply, and what share price does that make before any IPO discount?
Practice inside this guide
Valuation multiples practice
Question 1 of 1
Two companies have similar revenue but trade at different EV/EBITDA multiples. What explains the gap?
Why are IPOs underpriced?
Deliberately, to make sure the deal clears. CFI is direct: IPOs are often underpriced so the issue is fully subscribed even if the company leaves money on the table. The famous first-day pop is mostly this discount unwinding in public. The fuller answer has three distinct parts, and which one dominates shifts with the tape.
Valuation · try it first
At the pricing meeting the CFO pushes back: if the book supports the top of the range, why sell the shares for less than they are worth? Give the three-part answer, and name the reason that matters most on a weak tape.
Bankers also keep the 7 percent gross spread convention on many deals, split roughly 20 percent management fee to the lead, 20 percent underwriting fee to the syndicate, and 60 percent as selling concession, per CFI. After listing, the lead stabilizes the stock by buying into weakness, and the greenshoe is what makes that bid safe to run: allocating the 15 percent overallotment leaves the syndicate short shares it has already sold, so the stabilizing buy flow doubles as covering the short. What the banks do when the stock rips instead is the other half of the mechanics. A lockup, usually around 180 days, bars insiders and early investors from selling into the thin early float while that stabilization runs. Then the 25-day quiet period ends and covering analysts publish. The debt-side mirror runs faster and quieter: see how corporate bonds are issued.
Mental Math · try it first
On a 100 million share deal the syndicate allocates 115 million shares using the greenshoe, leaving the banks short 15 million shares at the offer price. The stock opens 5 percent below offer. Walk through how the short gets covered, and what the banks do instead if the stock rips.
Quick Math
- A target trades at $24.00 a share and the buyer offers $30.00. What premium is the buyer paying?
Premium = (offer − unaffected) ÷ unaffected. The undisturbed price is always the base.
- A bank earns a 1.5% advisory fee on a $240 million deal. What is the fee, in millions?
Anchor on 1% of the deal, then scale: 1% of $240M is $2.4M, half of that is $1.2M.
- A sponsor owns 15% of a company with $80 million of equity value. What is the stake worth, in millions?
15% = 10% + 5%: take a tenth, then add half of it.
Frequently Asked Questions
How long does the IPO process take?
Roughly three to four months from organizational kickoff to listing for a standard deal, per the classic timeline. The S-1 review takes the longest; the roadshow-to-pricing sprint is one to two weeks.
What is bookbuilding in an IPO?
Collecting investor orders during the roadshow to discover what the shares are worth. The book's depth and price sensitivity set the offer price the night before trading.
What is the greenshoe option?
The 15 percent overallotment option in the engagement letter, per CFI. It lets underwriters sell extra shares and buy them back to stabilize the price, which is the stabilization mechanism after listing.
Why does the quiet period matter?
For 25 days after the IPO, SEC rules restrict what the company and its underwriters may say publicly. Investors rely on the prospectus until research coverage resumes, which is why the filing has to stand alone.
What should I prepare for an ECM interview?
The standard technical stack plus genuine markets interest: recent IPOs, how they priced, and how they traded after. Our ECM guide lists the exact preparation, the DCM comparison covers the debt side of the same markets skill set, and the deal discussion framework shows how to talk through a recent IPO end to end.
Sources
- Corporate Finance Institute, "IPO Process": https://corporatefinanceinstitute.com/resources/equities/ipo-process/ (checked September 2026)
- PwC, "The Cost of an IPO": https://www.pwc.com/us/en/services/deals/library/cost-of-an-ipo.html (checked September 2026)
- Nasdaq, "How Nasdaq Supports the IPO Process": https://www.nasdaq.com/newsroom/how-nasdaq-supports-ipo-process (checked September 2026)
Mental Math
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