1 to 12 months before IPO: IPO readiness involves the acceptance and implementation of change.
Step 4: Building the right management and advisory team
You need to have the right executive team with experience in IPOs and appropriate incentives functioning well before the IPO. For the vast majority (90%) of institutional investors in our survey, quality of management was the single most important non-financial factor when evaluating a new offering.
Market leaders look at innovative ways to recruit and reward their key senior talent with compensation. Management incentives include performance-based compensation structures, share options, greater transparency and employee involvement. Such high-level incentives and shared ownership by management creates the motivation that often leads to strong performance.
Step 5: Building your business and financial processes and infrastructure
A robust infrastructure can facilitate regulatory compliance, protect against risk exposure and provide guidance to meet or beat market expectations.
Hence, you must define and implement, well in advance, the infrastructure of people, systems, policies and procedures. They will enable the production of quarterly and annual reports in compliance with regulations.
Currently, compliance of the infrastructure with local and foreign regulations is a significant task, as a company may need to change from its local accounting standard to IFRS standards (depending on the listing exchange's requirements).
However, as more countries around the world require IFRS for listed companies, differences between local and foreign regulations will diminish.
How to improve your infrastructure:
- Improve budgeting and forecasting capabilities
- Put financial statements in order
- Prepare to comply with local securities laws
- Address potential IPO accounting and financial reporting issues
- Develop appropriate corporate, capital and management structures
- Properly document transactions with owners and management
Step 6: Establishing corporate structure and governance
The media and general public placed partial blame for the 2009 financial crisis on poor corporate governance. Many believe that boards failed to understand and manage risk and incentives appropriately. With the charges of fraud and market manipulation that arose out of the financial downturn, investors are placing a premium on corporate governance and high stock exchange standards.
Corporate governance reform is now at the top of agendas for investors, regulators and boards. Boards are reflecting on how to be more involved with governance and create greater audit committee oversight of the risk management processes.
How directors can improve board performance:
- Have loyalty to shareholders, not management
- Challenge management to simplify and explain the business
- Serve as ambassadors and promoters of the business
- Carefully evaluate executive remuneration plans
- Improve audit committee oversight of risk management
Step 7: Managing investor relations and communications
Communicating the right messages about your business is always important. But it is particularly crucial when you are moving into the public arena. You need to maintain close relationships with your financial backers.
Private companies are often unaware of the level of accountability and scrutiny faced when going public.
They often underestimate the time and skill needed to court a new pipeline of public investors and to maintain aftermarket support. When newly public, you acquire a new range of stakeholders that will demand much greater transparency in your business.
Your team will need an investor relations professional who has the ability to work well with your bankers and is familiar with your industry sector and potential investors. He or she will help to build your strategy and guide communications to stakeholders and the media.
Step 8: Delivering an effective road show
Investors are looking for businesses with growth potential that translates into cash generation and bottom-line performance.
Completion of a high-quality road show is a critical event in the IPO process.
Every firm approaching an IPO is competing in a crowded marketplace for institutional investors' attention and money. To maximize the company's selling price, you need to stimulate interest in your company.
Institutional investors will rarely visit the companies they invest in. They prefer relying on information presented at the road show meetings and other sources. The road show will likely be the only time a company's senior management actually communicates directly with potential investors.
When drafting the presentation, you must keep two audiences in mind: the sales desk of your chosen broker and the institutional investors you meet on your road show. You will also need three to five key messages for an elevator pitch when you have only a few minutes to convey your investment story.
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