RiskWatch: IPO Due Diligence and State of the Market

9-minute listen

In this episode of the podcast, Mike Blankenship came back on the show to discuss the IPO underwriting process, the role of due diligence and the state of the IPO market. Mike is a Managing Partner at the Houston office of Winston & Strawn and focuses his practice on corporate finance and securities law, including securities offerings, public company advisory, special purpose company offerings, among others.  We covered a number of areas in our discussion, ranging from the state of the IPO market to the role of due diligence in the underwriting process. Below are three key takeaways from our discussion:

3:29 – The importance of investing in the diligence process in a choppy market

In a shaky market, all parties involved in the underwriting process should be spending more time in the diligence process. Conducting proper due diligence prior to taking a company public is a key step for all parties to ensure that all information in the registration statement is accurate and thereby reduce your liability.

5:34 – Why you should cast a broad net to catch risk factors and ensure accurate reporting

Under Section 11 of the Securities Act of 1933, the underwriters have a strict liability. Under the Due Diligence Defense under Section 11, all parties such as the issuer, the underwriters, and accountants could be exposed to liability if there are misstatements or omissions that have not been backed by proper diligence in the registration statement or the final prospectus. This includes uncovering potential risks beyond those traditionally disclosed in the Risk Factors section such as if a director makes false education or employment claims, all of which should be uncovered through proper due diligence.

5:56- The reputational impact of not conducting proper IPO due diligence

Underwriters that do not conduct proper due diligence prior to an IPO could face significant reputational damage if the registration statement or final prospectus has misstatements or omissions. If you’re known for not taking the due diligence process seriously then investors / buy-side clients will not want to buy securities from you because the necessary level of trust has been eroded.

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