Initial Public Offering (IPO) Best Practices
Overview
This document applies to all releases of Eagle software. Version-dependent functionality is noted with the initial release(s) it became available.
An initial public offering (IPO) involves a private company selling shares to institutional and retail investors. This can happen via a traditional IPO, special purpose acquisition company (SPAC), or direct listing. The private shares convert to public shares, sometimes at a ratio other than 1:1, and are then valued at the public trading price. For pre-IPO investors, this also commonly involves changes to security identifiers to reflect the new market standards.
Eagle has multiple workflows to support investments that result in IPOs, all of which assume the private shares are setup with Processing Security Type (3931) = EQCSCS (Common stock)
in Eagle Accounting. The best method for your business will depend on your specific requirements. The pros and cons of each workflow are detailed to help you make the correct decision for your business.
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Workflow Summaries
SMF Update
Update any relevant identifiers directly on the SMF using Reference Data Center or Issue Viewer
Pros: all identifiers can be updated and all historical and future performance return information is maintained on a single line item
Cons: users who process these transactions may not have access to update SMF data
Name Change Corporate Action
Set up a Name Change corporate action announcement, then trigger the action
Pros:Â all historical and future performance return information is maintained on a single line item
Cons: cannot be used to change the Primary Asset ID
Exchange Offer Corporate Action
Set up an Exchange Offer corporate action announcement with Share Taxability (3960) =
No
, then trigger the actionPros:Â all identifiers can be updated
Cons: performance return information from original purchase date through IPO date is captured on one line item, while information from IPO date forward is captured on a separate line item
The security-level and fund-level returns on the post-IPO position will be identical to workflows 1 and 2 on IPO date and all future dates
The security-level and fund-level life-to-date return on the post-IPO position will also be accurate because the position is transferred at cost, but you cannot do an accurate IRR calculation because the post-IPO position will reflect IPO date as the beginning of the calculation period
Historical security-level performance reporting from initial purchase until IPO date must be done on the pre-IPO position
Workflow Details
SMF Update
This workflow does not require any special setup or configuration. Simply follow your normal security update process using Reference Data Center or Issue Viewer and change the relevant identifiers to their new values.
If you need to maintain a record of the old Primary Asset ID (14), you can either add it as the Alternate Asset ID (1795) or use Add Security XReference (V17+)/Add Security Cross Reference (prior to V17). You may choose to add a new XReference Security ID Type (1234), such as PREIPO
, to capture the old Primary Asset ID.
Name Change Corporate Action
The first step in this workflow is to set up the Name Change corporate action announcement. A list of the required fields is below. Once the announcement has been created, it can be triggered using the Name Change Processing global process.
Asset ID (14): of private security
Issue Name (961): of private security
Sweep Date (1197):Â date when the global corporate action process will pick up and execute the corporate action (generally current date)
Ex Date (65):Â date when the corporate action takes effect
Corporate Action Status (54) =
Released
To Issue Name (1711): of public security
To Issue Description (1699): of public security
Corporate Action Type (1728) =
Name Change
Exchange Offer Corporate Action
The first step in this workflow is to create a new SMF for the public security. Next, set up the Exchange Offer corporate action announcement. A list of the required fields is below. Once the announcement has been created, it can be triggered using the Exchange Offer global process.
From Asset ID (14): private security
From Issue Name (961): private security
From Post Action Price (369): typically the open or first traded price of the private security
Sweep Date (1197):Â date when the global corporate action process will pick up and execute the corporate action (generally current date)
Ex Date (65):Â date when the corporate action takes effect
Treatment of Fractional Shares (3965): defaults to
Round Down
, ensure appropriate value is selectedCorporate Action Status (54) =
Released
Share Taxability (3960) =
No
Mandatory/Voluntary Indicator (1734) = Mandatory
To Asset ID (1348): public security
To Issue Name (1141): public security
To Post Action Price (319): typically the open or first traded price of the public security
Rate Of Action (1001): specifies the ratio used to convert the private security to the public security
A value of
1.00
will result in an equivalent number of shares, a value of2.00
will result in double the number of shares of the public security as the private security, etc.
Corporate Action Type (1728) =
Conversion
orÂExchange Offer