5 tips to help you execute a successful IPO

Author: Gary Schweitzer

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All happy IPOs are alike. Each unhappy IPO is unhappy in its own way.

This paraphrase of Leo Tolstoy's "Anna Karenina" can teach us much about Russian IPOs. A happy IPO is one in which the sellers receive maximum value for their investment, giving due consideration for the need of a price bump to benefit day-one investors, and the new public company delivers on the promises it made during the pre-IPO road shows. An unhappy IPO is characterized by the opposite: a disappointing price either initially or after trading begins and disappointing performance as a public company.

All happy IPOs are alike because of planning, execution and realization. Why is each unhappy IPO unhappy in its own way? The IPO process is complex and long, with many participants and stakeholders. The company must prepare internally, analyze the impact of the IPO on current financing, price the IPO, execute it during what may be a narrow window of opportunity and then realize the IPO by performing like a public company. At each phase of the IPO process, there are many critical steps that may be overlooked or ignored, any of which can cause an unhappy IPO.

There are three main reasons for an IPO: to provide an exit for current shareholders, to finance innovation and growth and to increase visibility and credibility with stakeholders. Often, all three will be present. Whatever the reason, volatile markets pose difficulties for companies. Companies should keep the following five keys to success in mind:

1. Know when to move. Rising markets are hard to predict and often differ by industry, geography and market segment.
2. Plan early and move fast. Taking advantage of an opening in a rising market means early preparation.
3. Keep investors informed. Investors and the market like information.
4. Keep prices down. This may require an IPO price at the low end of the range to allow for a day-one price bump
5. Location, location, location. Where to list the shares is a strategic decision.

The period after the flotation is critical to building on the initial confidence and ensuring that the shares remain stable in a volatile market. This is where the happy IPOs deliver on their promises. And that goes back to the planning phase. Transforming your company from a private to a public company means adopting the financial reporting, corporate governance and other features required by the market. Start behaving like a public company a year in advance so that the management team is already used to acting like a public company when the IPO comes. It's then easier to maintain the momentum after the float.

EY can help with the planning and execution of an IPO in many areas. See the brochures on this page and give us a call.