By: Hem - 12-Aug-2021

Role of A Merchant Banker in SME IPO

SEBI defines a Merchant Banker as any person who is affiliated with the business of issue management either by arranging securities for the purpose of buying, selling, subscribing, or performing the role of a manager, consultant, or a corporate advisory rendering services in relation to issue management.

A Merchant Banker performs several functions ranging from Portfolio Management to Loan Syndication and Leasing Activities. However, did you know a Merchant Banker plays a very crucial role in SME IPO listing?

We’ve already covered what SMEs are & how SME IPO listing works in our previous blog. Now, let’s look at the varied roles a Merchant Banker from Hem Securities performs in an SME IPO. The process is divided in 7 phases, they are as follows:

PHASE I: ASSISTANCE WITH PRE-IPO PREPARATION

We will assist you in preparing for an IPO and get listed on the stock exchange. During this phase, we will assist in the following areas: –

• Creating an appropriate capital restructuring strategy.
• Implementation of a Bonus Issue/preferential allotment (if necessary).
• Establishing minimum corporate governance practices expected of a listed company in accordance with the Companies Act, listing regulations (as applicable), SEBI (ICDR) Regulations, and relevant laws.
• Appointment of market intermediaries and other parties, such as Underwriters, Registrars to Issue, Legal Advisors, Issue Bankers, PR Agency, Printer, and so on.
• Creating a comprehensive IPO plan and strategy, including the likely post-IPO shareholding distribution pattern.
• Coordination with Peer-Review Auditors for the restatement of the Company’s financials as required by SEBI (ICDR) Regulations.
• Obtaining an ISIN from the Depository (ies) and dematerializing the Company’s pre-IPO shares.

PHASE II: DUE DILIGENCE:

We will be responsible for conducting due diligence, our scope of services will include the following:

• Conduct a preliminary background investigation.
• First level due diligence is based on preliminary information/documents provided by the Company as well as the publicly available information.
• Pay a visit to the Company’s office(s) and factory.
• Hold discussions with the issue’s management, auditors, and legal counsel; finalize the Due Diligence report.

PHASE III: VALUATION / ISSUE PRICING

In this phase, we will be conducting valuation exercise. Our scope of services will include the following:

• Ratio analysis, such as EPS, BVPS, RONW, and so on, as required by SEBI ICDR.
• Analysis of the industry from the standpoint of valuation.
• Identifying peer comparable.
• Peer analysis and pricing of publicly traded peers.
• Determining the size and pricing of the issue for discussion with management.

PHASE IV: DRAFT RED HERRING PROSPECTUS PREPARATION AND FILING

We will draft the IPO Offer Document (DRHP), as well as other important agreements, documents, and resolutions required for the IPO process. For your convenience, the following is a list of the important documents:

• IPO Offer Document.
• Tripartite Agreement with NSDL, CDSL, and Registrar to Issue.
• Underwriting Agreement.
• Agreement with Bankers to Issue.
• Agreement with Registrar to Issue.
• Board / Shareholder Resolutions.
• Certificates, Letters of Representation, and so on.
• Drafting of public advertisements, notices, and so on.
• Forms and applications to be filed with the Stock Exchange, the RoC, and other regulatory bodies.

Following a thorough review, the Draft Red Herring Prospectus will be filed with the Stock Exchange and SEBI.

PHASE V: PREPARATION OF THE INFORMATION MEMORANDUM/INVESTOR PRESENTATION, AS WELL AS HANDLING THE IPO’S PUBLIC RELATIONS AND MARKETING, INCLUDING THE ORGANIZATION OF ROADSHOWS.

• IM preparation / Investor Presentation Preparation.
• Organizing Investor Meetings and/or one-on-one investor interactions.
• Putting on roadshows.
• Organizing a media gathering(s).
• Analysts in charge of organizing the get-together. Consultation with institutional investors and brokerage firm.
• Managing all aspects of public relations and marketing.
• Help with representation to institutional investors/HNIs, etc.
• Research Analyst Preparation and Assistance Meet, if necessary.

PHASE VI: PROBLEM SOLVING

You will have our assured assistance throughout the entire IPO process, including the following activities:

• Filing of RHP/Prospectus with Stock Exchange(s) and other regulatory bodies such as SEBI and RoC.
• Follow-up with the Stock Exchange, SEBI, and the RoC for approvals; Execution of agreements with other market intermediaries.
• Assist in the launch of the IPO and coordination with other parties such as PR agencies and printers to ensure adequate public advertisement and distribution of application forms as required by law.
• Monitoring the flow of applications and maintaining real-time communication with the Company’s management.
• In consultation with the stock exchange, coordinate with bankers and registrars for the deposit of application funds and the finalization of the allotment list.

PHASE VII: ASSISTANCE WITH POST-IPO CLOSURE

Following the completion of the IPO and allotment, we will begin the process of listing the Company’s equity shares on the Stock Exchange. We will help with the following activities during this phase:

• Completing the distribution of shares to the successful allottees.
• Getting ready to submit a listing application.
• Submission of a listing application to the Stock Exchange.
• Coordination and assistance with the Stock Exchange Listing Advisory Committee interview.
• Follow up with the Stock Exchange to obtain approval for listing.
• Trading formalities and obtaining trading approval from the Exchange.
• Making required public disclosures in accordance with the law.

At Hem Securities, we endeavour to facilitate our customers with superior services that benefits everyone involved. If you are looking to expand your business exponentially, explore SME IPO listing with Hem Securities today!