Focus on being a public company — not just on going public.
For fast-growing private companies seeking to raise capital, an IPO can be a superior route to funding growth.
While challenging markets will come and go, it’s the companies that are fully prepared that will best be able to leverage the windows of IPO opportunity whenever they open.
This report will help you to begin what we call the IPO value journey and transform your private company into a successful public company that continually delivers value to its shareholders.
IPO value journey: from planning to realization
What does a highly successful IPO look like?1
Rather than just asking if the markets are ready for you, the key question that you will need to ask when entering the public markets is, “Are we prepared to deliver?”
Prepare early
- Begin the IPO readiness process early enough so that your pre-listed company acts and operates like a public company at least a year before the IPO.
- Commit substantial resources to the IPO process and build the quality management team, robust financial and business infrastructure, corporate governance and investor-relations strategy that will attract the right investors.
- Don’t underestimate the amount of time the IPO journey will take, and the level of scrutiny and accountability faced by a public company.
Outperform competitors on key benchmarks
- Investors base an average of 60% of their IPO investment decisions on financial factors especially: debt to equity ratios, EPS growth, sales growth, ROE, profitability and EBITDA growth.
- Investors base an average of 40% of their IPO investment decisions on non-financial factors especially: quality of management, corporate strategy and execution, brand strength and operational effectiveness, and corporate governance.
- Be able to articulate a compelling equity story backed up by a strong track record of growth which sets you apart from your peers while maximizing value for owners.
Evaluate capital-raising options
- Consider a “multi-track approach” and the expanding number of capital-raising strategies — including a strategic sale to a trade or financial buyer, joint venture, private placement or a foreign listing.
- Pursue pre-IPO transactions to achieve maximum value — especially debt financing and refinancing, corporate reorganization, private placements or business alliances.
Address investors’ current concerns
- Recognize the need for enhanced corporate governance — especially recruiting qualified non-executive board members, improved internal controls, and forming a qualified audit committee.
- Fine-tune your internal business operations — especially working capital management, regulatory risk and rationalizing the business structure.
- Deal with current accounting challenges — especially asset valuation impairment, consolidated subsidiary financial statement issues and revenue recognition.
An IPO can help fund growth
While not all businesses are suited to life in the public eye, for many fast-growing private companies, an IPO can raise the capital needed to accelerate growth and achieve market leadership.
An IPO is the first sale of a company’s shares to the public and the listing of the shares on a stock exchange. It allows a company to raise capital in order to build its business by creating and selling new shares.
- Unlock access to financing to complete a strategic acquisition.
- Create opportunities to expand your business into new markets.
- Provide an exit opportunity for your private equity or other investors.
- Improve perceptions of your business and brand with customers, suppliers and employees.
This executive summary describes the top 10 IPO readiness steps for a pre-listed company. It also discusses the results of our 2009 survey of institutional investors regarding the impact of the uncertain markets on their evaluations of new offerings.
The transformative IPO process
The IPO process should be a structured and managed transformation of the people, processes and culture of an organization.
Although the IPO event itself generally lasts 90 to 120 days, the IPO value journey begins at least a year or two before the IPO and continues well beyond it.
Even when the financial climate is not ideal for raising funding, it could be a good time to be planning for an IPO or any other deal. While waiting for markets to settle, executives may embark upon the IPO value journey.
Those companies that undergo an effective IPO readiness transformation during uncertain times will be best-positioned to take advantage of improved equity market conditions.
1 According to our 2009 global IPO Institutional Investor survey and our decades of IPO experience.
