Newsroom > Successful IPOs act like public companies at least one year before listing - Ernst & Young - Belgium

Measures that matter canvassed the views of C-level executives at outperforming companies as well as the external perspective of global institutional investors. The results provide insights into pre- and post-IPO practices associated with an outperforming public company as well as the “measures that matter” to institutional investors.

According to institutional investors, on average 60% of their IPO investment decisions are based on financial performance measures and 40% on non-financial. The three most important financial measures are earnings per share growth (selected by 45% of investors), EBITDA growth (44%), and profitability growth (41%).

Ninety-five percent of investors cite management credibility and experience as a key non-financial metric. Half of investors cite effectiveness of performance-based compensation policies as an investment factor, due to its bearing on a firm’s ability to recruit and retain highly talented senior management. Reflecting this, over half of executives surveyed said building a strong management team is an important factor in building and realizing shareholder value post-IPO. Twenty percent began building the right team more than 20 months before the IPO, while 33% had started 12 to 24 months before listing.

Investors also identified corporate strategy execution (87%), quality of corporate strategy (79%), corporate governance (74%) and brand strength (74%) as key non-financial measures. Two-thirds of companies surveyed had implemented strategic planning, corporate tax planning, internal control systems, financial accounting and reporting issues at least 12 months prior to the IPO. Seventeen percent had started strategic planning more than 20 months prior. Senior executives cited the importance of building financial and accounting systems early, but identified numerous challenges. The three most cumbersome issues were adjusting historical financial statements to comply with local requirements (selected by 40% of respondents); dealing with consolidated subsidiary financial statements (35%); and adjusting historical financial statements to comply with foreign listing requirements (34%).

Executives of outperforming companies cite the change in composition and structure of the company board as one of the most beneficial changes for post-IPO value. However, only a third had prepared board composition more than six months prior to listing. Many executives found recruiting independent board members more difficult than anticipated and suggested more time should have been allocated to this. The three most challenging corporate governance issues are recruiting qualified independent board members (selected by 48% of respondents); enhancing internal controls (47%); and forming a qualified audit committee (31%).

Building an investor relations team is generally one of the later steps in the IPO process. However 24% of executives surveyed had already started to build an investor relations team more than six months prior to the IPO. Two-thirds of institutional investors cited quality of investor relations guidance as a key measure in their portfolio allocations but only half of executives felt well prepared on this front. High performing companies quickly delegate communications responsibilities to their investor relations team, focus on creating a high-quality roadshow (identified as a key non-financial metric by 88% of investors), and keep investors well-informed.

Marc Guns adds: “Executives who have overseen successful IPOs focus on being a public company - not just becoming one. They position themselves as public entities long before the event. Post-IPO, they deliver shareholder value by meeting targets consistently, attracting the right investors, effectively communicating to stakeholders and most importantly by delivering operational excellence. The IPO may be the most important transaction in a company’s history to date, but for an exceptional enterprise it’s often just one more milestone along the road to market leadership.”