The Ins and Outs of Preparing for an IPO: Phase one (A)

This is the second in a series of posts: The Ins and Outs of Preparing for an IPO -What Your Company Needs to Know. 

Phase I – Preparing for an IPO 

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It is commonly thought that a pre-listed company must start acting and operating like a public company well in advance of its initial listing on an exchange. This involves a structured and managed transformation of the people, processes and culture of an organization. More specifically, a company must go beyond presenting a strong balance sheet and cash flow statement to send a compelling message to investors: It must also establish internal accounting controls, a strong management team and independent board, and an effective communications strategy.

The amount of time required for the IPO journey should not be underestimated. Although the IPO event typically lasts only 90 to 120 days, planning and preparation should start at least 12 to 24 months ahead of the intended launch date. This time frame is considered an industry standard and is supported by most industry IPO guides by consultancy groups like EY, PwC and KPMG.

This will allow a company to commit the necessary resources to build a quality management team, a solid financial and business infrastructure, and a corporate governance and investor relations strategy that will attract the right investors. Remember, becoming a public company will invite an increased level of investor and regulatory scrutiny.

To highlight the importance of devoting the appropriate time and resources to this phase, a survey by KPMG found that 81 percent of financial directors and 62 percent of chief executives indicated that more than half of their time was dedicated to the IPO process.

Conducting a pre-IPO readiness assessment: Is an IPO right for your company?

An IPO is by no means the only path an organization might take in its efforts to raise capital. Before embarking on this journey, the ownership group must carefully assess whether taking the company public is the best option by doing a comparative analysis of the benefits and the disadvantages of an IPO.

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While the advantages of going public (such as prestige, access to capital for expansion, higher valuations and liquidity) are well-known, the disadvantages (like compliance and reporting costs, loss of control, heightened shareholder expectations and more stringent corporate governance requirements) may force the management team to consider other, more viable options that are better suited to their company.

According to Deloitte, a company many need to “significantly upgrade finance, accounting, tax, governance and risk management practices and processes a year or more ahead of an IPO. These functions in private companies are often not at the level they need to be compared with what is needed after going public, particularly in the areas of governance and risk management.”

Download our S-1 registration workflow chart for a visual understanding of the SEC commenting period.


PHASE ONE (B) WILL BE POSTED NEXT WEEK

 

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