Category Archives: IPO series: The Ins and Outs of Preparing for an IPO

The Ins and Outs of Preparing for an IPO: Phase three

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

Phase III – The post-IPO and realization


The last stage of the IPO journey, which usually lasts one to 24 months, begins after shares are priced and allocated to institutional investors.  At this stage, aftermarket trading and the “real work” of being a public company begins. The initial euphoria of the IPO, fuelled in part by investors’ interest in IPOs and by press coverage, can maintain share price. However, should the market’s interest in the company wane, trading volume and value of the company’s shares will also decline.

Developing an aftermarket strategy

Once the IPO is over, the newly minted public company must implement a proactive investor relations strategy to attract the optimal ownership mix and long-term pipeline in the aftermarket. A key element to this strategy is attracting equity research analyst coverage and establishing an ongoing dialogue through carefully constructed messages to the targeted investors and analysts. Management must assess their knowledge of the breadth of their coverage to help them understand their company.

A company must also strive for accuracy in its projections and forecasts so that targets are reached. A single negative news report that is not well-managed by the investor relations team can have negative consequences on a company’s stock price.  This often comes down to managing shareholder and analyst expectations.

Delivering on its growth promise is a key element to any aftermarket strategy. This means continued execution of the company’s business plan and meeting financial targets on a consistent basis. Central to keeping this momentum is demonstrating the use of IPO capital to accelerate growth, whether by expanding into new geographic areas, acquiring other companies, developing new products, or upgrading technology. Conversely, investors are wary of investing in companies where management is cashing out by selling more than 30 percent of their shares.

Managing post-IPO risk and regulatory compliance

The risk management and regulatory compliance framework established during the pre-IPO stages should not be neglected once a company goes public. Rather, a concerted effort to maintain this infrastructure will be required to manage ongoing risks ranging from financial reporting to compliance to growth initiatives.


More specifically, an EY study revealed that the top two internal business concerns to investors are cash flow management and regulatory and compliance risk.

Companies are often well-supported until the IPO, but then once they are public, things can get complicated. They should be prepared for issues that may arise following the IPO launch. A maturing public company will need to return periodically to the beginning of the IPO cycle, and recreate strategies and processes to deal with life as a public company.


The transformation from a private company to a public enterprise is often seen as a crowning achievement that can lead to an exhilarating and profitable journey. However, the lure of successfully launching a company into the public sphere should not detract company ownership from thoroughly examining other capital-raising alternatives, even if a company is a suitable IPO candidate.

Not only must senior management lay out a detailed plan to go public, they must be prepared to undertake a lengthy process characterized by many pitfalls and risks that private companies do not have to face. This frequently involves establishing and integrating many complex procedures and structures. It also requires molding a diverse and wide-ranging team of players—including the management team, board of directors and external advisors—into a cohesive unit working effectively for a common objective.

Besides the internal challenges, going public also places new external imperatives on a company seeking public status. Senior management must be prepared to face new levels of public scrutiny, and to convey a positive growth message to convince investors that the company is indeed ready to go public and sustain growth beyond the IPO launch.

Only a senior management team with the vision and discipline to simultaneously undertake these challenges over a sustained timeframe will successfully reap the benefits of a public offering.

The Ins and Outs of Preparing for an IPO: Phase two (C)

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

Phase II – Executing an IPO


Investor relations and the IPO marketing process 

As a company transitions from private to public, a strong investor relations team is essential in sustaining market interest, communicating with shareholders and the public, and attracting a new pipeline of investors. The IPO marketing process can be divided into three distinct segments, including pre-marketing, the road show and pricing.

Prior to filing a registration statement and publishing a preliminary prospectus, the investor relations team will develop and carefully cultivate the company’s image by communicating the right message to stakeholders and the media regarding its equity position and the upcoming IPO transaction. This will require keeping a variety of disclosure vehicles, including annual and quarterly reports, proxy statements, press releases and direct mailings.


The road show and pricing the IPO

A road show, which generally lasts about two weeks, is a critical event in the IPO journey. Institutional investors tend to rely heavily on the information presented at the road show meetings. “The road show will likely be the only time a company’s senior management actually communicates directly with potential investors, and therefore represents a crucial opportunity to convince potential investors to invest in the offering, according to EY.

Prior to launching the road show, an IPO candidate must file the principal offering documents, including  a prospectus, which is then filed with the SEC; and the road show slides, which together with the prospectus,  are used to market the offering.

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

CLICK HERE to download our S-1 registration workflow chart for a visual understanding of the SEC commenting period.

The draft prospectus, which is filed with the registration statement, is then open for material comment by the SEC. There are generally several rounds of amendments to the registration statement. Once the SEC’s comments have been resolved and the registration statement is complete, the road show is launched.

This is when senior management presents its “slide show” in a series of meetings with investors, often held in multiple cities on the same day. A slide show generally consists of a 25-minute presentation emphasizing the company’s selling points and investment merits. When drafting a slide show, the IPO candidate needs to keep two audiences in mind: the sales desk of the chosen broker, and the institutional investors on the road show.

Once the underwriters have lined up a number of prospective IPO investors, the underwriters, alongside the company’s board of directors, set the price at which they agree to sell the shares.

According to Inc., “The IPO will typically close on the fourth business day after the pricing. At that time, the issuer and any selling stockholders will release the shares to the underwriters, and the underwriters will purchase the shares.”


The Ins and Outs of Preparing for an IPO: Phase two (B)

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

Phase II – Executing an IPO


Corporate governance and a board of directors

All of the major stock exchanges require a registrant to have a majority of independent directors on its board. According to PwC, “…one of the best sources of objective advice can come from an independent or outside director.” As with every other element of the IPO journey, a company should seek qualified board members well in advance of the IPO launch. “A potential board member who is unfamiliar with a company may be reluctant to join the board immediately before an IPO since a director has personal liability for information contained in or omitted from the registration statement,” PwC adds.

EY’s Guide to Going Public survey revealed that recruiting qualified independent board members was the greatest corporate governance issue faced during the IPO process.

Choosing an investment bank

Of all the external advisory professionals involved in an IPO, the underwriter is potentially the most important. While no company is obligated to use an underwriter to go to market, garnering their expertise has its advantages. An investment bank can ensure an IPO will be properly managed and successfully marketed. Investment banks also have an instinct for timing an issue, and they can often anticipate pitfalls and calculate risks. The size and scope of a company and its offering will, in part, determine the size of the underwriter it will need to enlist for its IPO.

For more on the IPO process, listen to the complete webinar HERE.

Other characteristics to look for when choosing investment bankers include the candidate’s likeability, communication style and trustworthiness. It is also important to find an investment banker that specializes in businesses or industry segments similar to that of the IPO candidate, and one that has proven experience in underwriting IPOs.

Regulatory compliance: The financial health-check

According to KPMG, the process of going public will necessitate a fundamental shift in financial reporting and planning. IPO candidates will need to comply with the local regulatory requirements for their respective exchange. In the U.S., this means compliance with both the federal Sarbanes–Oxley Act and local U.S. GAAP accounting practices.

Sarbanes-Oxley requires a registrant’s management (CEO and CFO) to provide certifications in periodic filings with the SEC, and to have an independent audit committee with at least one member qualified as a financial expert.

Any public company will need a suite of board-approved risk management and control policies. Companies in today’s business environment are focusing more on risk assessment and response as a result of increased regulatory and investor scrutiny. Shareholders are also increasingly expecting transparency, open communication and effective global risk management.

Enhancing internal controls can help meet evolving tax, legal, accounting and procedural challenges. Establishing an internal audit committee is key to meeting these requirements. Audit committees typically examine the annual and quarterly financial reports, and review the financial reporting and budgeting processes.



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

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

Phase II – Executing an IPO


As we discussed in the previous blogs, once the pre-IPO assessment has been completed, identify company should have a clearer idea of some of the challenges it will face, and can shape the steps needed to make the conceptual plan a reality.

Similar to the preparation phase, the time needed to implement these goals should not be underestimated. There can be several months of work needed before the formal IPO launch. This phase can range from one to 12 months, and will require company executives maintain a strong focus on change management approaches, as well as an appreciation of what can reasonably be accomplished within the given time frame.

Building the management team

To convince the investment community that it has the skills and experience needed to undertake an IPO transaction, a company must expand its management capabilities. Investors often say they back the people, not the plan. For the majority of institutional investors, quality of management is the single most important nonfinancial factor when evaluating a new offering.

Most companies seek top management officials with a proven track record in IPOs. In addition, both the executive team and management must demonstrate the capabilities to oversee daily operations. Some companies will turn to individuals who have public company experience in marketing, operations, development and finance.

The CEO is generally focused on investor relations in a public company. The investment community will look to the CEO to articulate and execute the company’s vision. According to PwC, “Many companies also want to put a CFO in place who has previously been through the IPO process.” Meanwhile, according to EY, “Although both the CEO and CFO will need to co-navigate the pre-IPO process, the CEO often becomes the primary liaison with the aftermarket.”


A key factor to consider when assembling a management team is remuneration and incentives. Remuneration is an area of increasing complexity and an ongoing regulatory challenge. As EY points out, “An IPO presents significant opportunities to deliver remuneration in ways that are not generally available to private companies. Equity can form a key component of remuneration for executives, and can be used to promote the company’s brand among employees.”

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

CLICK HERE to download our S-1 registration workflow chart for a visual understanding of the SEC commenting period.

As market leaders look at innovative ways to recruit and reward their key senior talent with incentives, those incentives may include performance-based compensation structures, share options, greater transparency and employee involvement. High-level incentives and shared ownership by management create the motivation that often leads to strong performance.

The process of assembling an external advisory team should begin well in advance of the IPO launch date. It is generally made up of an array of professionals from fields as diverse as investment banking, legal, public relations, marketing and accounting. The external advisory team should have experience with the IPO process, an existing network of contacts and knowledge of the company’s industry. It’s also critical that the team shares similar long-term goals for the company.



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

This is the third 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 



Two weeks ago, we bullet-pointed out the advantages and disadvantages of an IPO. Beyond these considerations, the management team also needs to evaluate the company’s overall financial suitability and position in the market. This circles back to the necessity of acting like a public company to adequately demonstrate to potential investors that your company has an attractive track record with prospects for maintaining strong earnings growth.

Therefore, a company should begin by determining if it has:

  • An attractive product or service to offer
  • An experienced management team in place
  • Favorable financial prospects
  • A positive trend of financial results

According to PwC, “Many companies that have successfully gone public have illustrated market support for their product or service that would sustain an increasing annual growth rate over a period of time.” These companies often can use historical sales data to confirm that their products or services are of interest to the consuming and investing public.

Another key to a successful IPO is understanding the critical success factors that institutional investors seek out when making buy or sell decisions in their portfolios. These investors can typically buy anywhere from 70 percent to 80 percent of an IPO stock allocation. As a recent survey shows, this has changed significantly since the financial crisis of 2008. Investors now give a 60/40 ratio of financial to nonfinancial metrics when weighing the attractiveness of a company’s valuation. Debt-to-equity ratio and management credibility are the two most important IPO financial and nonfinancial success factors that investors consider in their assessments.

Going public is not the only means to access capital. A company may consider strategic alternatives to meet its capital and growth objectives, such as private placements, leveraged buyouts, accessing the bond market, joint ventures or traditional debt vehicles.

According to Deloitte, however, even if a company chooses to remain private following a pre-IPO assessment, efforts made during the pre-IPO process can help a company improve capabilities. “With public company processes established, companies that choose to remain private often find it easier to obtain private capital, attract venture partners and expand or improve supplier relationships.”

Choosing an exchange and timing the market

The choice of a stock exchange will have deep implications on the organizational structure and internal processes of a company. While there is no specific methodology for selecting the right exchange, executives must consider the unique characteristics of each stock market—its structure, quality, size and scope—to identify the one that best fits their IPO.


Each stock market has specific entry requirements, such as earnings history, shareholders’ equity, market capitalization, number of expected shareholders and corporate governance.

A company’s investment banking advisers play an important role in the selection process, as they can provide in-depth information on the investor base in each market and the market’s likely appetite for the company’s shares.

Beyond the financial criteria for choosing exchange, there are also a set of nonfinancial benefits to consider. According to McKinsey, these can include “ease of access, regional proximity, or the expertise of the analyst and investor community in a specific location.”

Timing and the ability to be flexible are essential components of the IPO process. There are many factors that can have an impact on the demand for IPOs, such as the strength of the economy and overall market and the market’s appetite for IPOs.

While bull markets tend to favor IPOs, should a company find itself preparing to offer during a bear market, they many not be as fortunate. In addition, different industries have different periods of buying sprees. Recognizing the role the market will play in your IPO is paramount. Missing an IPO window by as little as a few weeks can result in a postponed or withdrawn IPO, or even a lower market valuation.

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

CLICK HERE to download our S-1 registration workflow chart for a visual understanding of the SEC commenting period.

A lot of preparation goes into the IPO process, but market volatility is a variable factor that may deter initial plans. Companies must be flexible with their IPO plans. Understanding that market conditions may not be conducive to a company’s initial plan, companies must be prepared to adjust their timetable for when it makes the most sense.

Gauging investor appetite

Investor interest in IPOs is often an indicator of the liquidity of a capital market, which will impact a company’s initial valuation.  In markets with low liquidity, investors are either unwilling or unable to free up capital to purchase new shares. Some markets tend to have a fairly high appetite for initial offerings, whereas others may be warier about placing bets on new listings.

One must always remember, however, that investor appetite is notoriously fickle, and often focuses on a handful of hot, trendy sectors. IPO candidates should not choose an exchange based solely on which sectors are attracting investor attention in the short term



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 


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.


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.



The Ins and Outs of Preparing for an IPO: Introduction