If you are leading a company that is preparing to go public within the next few years, you have much to consider: the strength and buoyancy of the U.S. capital markets, current economic indicators and your company’s performance. No one will tell you going public is easy. But the rewards can be monumental. Here are the top 10 things you need to do to be successful.
1. Prepare for the IPO value journey
When starting out, it’s important to recognize that the IPO event is not the endgame. Rather, this will be a momentous process for your organization that will continue long after the actual transaction. Your journey begins with earnest decision-making and diligent planning. IPO readiness is defined, in part, by managerial diligence, endurance and organizational discipline. Successful IPO candidates often spend two years or more building business processes and infrastructure, recruiting executive and advisory talent, getting in front of financial and reporting issues and mustering the essential board of directors’ commitment to go public.
2. Keep your options open
Many private companies find the private capital markets to be a highly effective and less expensive route to raising capital. But before settling on the IPO route to growth capital, explore alternative strategies. The mergers and acquisitions market, private equity-backed deals and dual-track approaches (such as a concurrent pursuit of both an IPO and an M&A transaction) are viable alternatives to raise capital and offer their own unique strategic advantages.
3. Act like a public company
Address key financial and reporting issues, including stock option issuance, revenue recognition practices and segment reporting processes, and how to provide achievable guidance and forecasts. Hold meetings with your current investors to review drafts of quarterly/annual filings and press releases and to answer challenging questions prior to the IPO. The well-prepared company that has addressed all the potential issues will be able to move swiftly when the market is right.
4. Build the right team
Investors will place their bets on the substance of management and the probability of team execution. Your executive management, finance and accounting staff, sales and marketing, R&D, production and beyond must be an enterprising group with deep-seated commitment and operational experience. Your public company board should be of sufficient size, structure, quality and depth, with individual expertise in strategic planning, your industry, business development through organic growth or M&A activity and have past involvement in a successful liquidity event. Selecting the right team of external IPO advisors—attorneys, underwriters, auditors, transaction specialists, business-process specialists, investor relations professionals and others—is also imperative.
5. Strengthen your business processes and infrastructure
IPO readiness is established, in part, by managerial diligence and endurance and organizational discipline. Along with public company status come rigors and scrutiny you have not experienced previously; you must define and implement adequate business policies and procedures, systems, security and controls well in advance to make sure that they will withstand public inspection.
6. Establish corporate governance
Build a public company board with a substantively disparate mix of compensation, compliance and governance specialists, corporate strategists and experienced business and financial executives. Adopt best practice corporate governance principles and reporting policies that protect shareholder interests.
7. Manage investor relations and communications
Your company’s debut in the public markets requires a strategic investor relations function that knows how to sustain the market’s interest, communicate with your shareholders and the public, attract a pipeline of new investors and sell-side research coverage, and manage regulatory and liability risk. Building this competency is a fundamental element in your IPO preparation process.
8. Conduct a successful IPO road show
The road show is a critical event in the IPO process. You must be fully prepared to sell the investment merits of your company’s story. A typical show should include one-on-one and group presentations, breakfast, lunch and dinner meetings, and travel between cities. Management must sell the investment merits of the story and be prepared to address skeptics who will pose challenges to the investment thesis.
9. Attract the right investors and analysts
Public companies must take individual responsibility for targeting sell-side analyst coverage from a broad universe of firms. You should be prepared to cultivate an open channel of outreach to potential buy-side investors through ongoing dialogue, conference attendance and non-deal marketing visits.
10. Deliver on your promises
Once your company goes public, the real work begins. You must meet or beat the expectations you set. Dictate the metrics by which external stakeholders will measure your company’s performance by defining the parameters management uses to track the business and giving investors and analysts a blueprint to follow. Delivering on your promises is a fundamental preparedness factor, an absolute.
Preparing for an IPO is an intense and arduous process, and it’s easy to become distracted by the enormity of the task. You and your team must strike the right balance between managerial focus on the IPO transaction and the day-to-day operation of the company. The IPO may be the most important transaction in your company’s history to date, but it’s often just one more step along the path to market leadership.
David Jolley is the managing partner for Ernst & Young LLP’s Salt Lake City office. He has more than 20 years of experience providing business advisory services to high-growth companies. He can be reached at 801-350-3354.