Clearly, there is a lot for a family to consider when it does decide to embark on an IPO – not least the expectations of different family members. So how can it make a success of taking the family enterprise public?
1. Be clear about the strategy – the “why?” of going public
This point was highlighted by our recent webcast, EY Private Perspectives: how equity management can maintain intergenerational ownership. In the webcast, Lisa Rejler, Member of Board of Directors at Nordic engineering consultancy Rejlers, explained why her family-owned enterprise had taken the IPO route back in 2003. The company wanted to accelerate its growth and raise its profile within the media to improve its attractiveness as an employer. It saw an IPO as the best way to achieve these objectives. The strategy has paid off, with Rejlers increasing its revenue nearly tenfold, from SEK 255 million in 2003 to SEK 2.5 billion today. As well as providing a cash injection that will facilitate the growth of an enterprise, an IPO can enable family members to pursue philanthropy or impact investing by virtue of the proceeds it generates.
2. Involve all family members in the decision-making, including the next generation
Communication can be a problem in family-owned enterprises due to a lack of open dialogue between, and among, the different generations of owners. Yet an IPO is likely to be a smoother process if family members have bought into the idea. For this reason, it is important to engage with the next generation at an early stage, potentially involving professional experts in any discussions that take place. Next-generation family members are likely to be supportive of taking the enterprise public because they tend to be pragmatic thinkers who recognize that an expanding number of family shareholders eventually calls for new approaches to ownership.
3. Foster transparent communication
Many of the most successful family-owned enterprises have developed a unique business culture as a result of their owners’ stewardship. Open and transparent communication between family members in the run-up to the IPO will help to ensure that a family-owned enterprise maintains its culture, values and vision once it has gone public.
4. Undertake an IPO readiness assessment
The process of transforming a private enterprise into a public company is a significant endeavor that requires thorough preparation. Businesses that list successfully may begin their preparations up to 24 months in advance of the planned IPO date. They will also identify and address readiness gaps between where they are currently and where they need to be for the IPO to succeed.
These gaps are likely to fall within areas such as leadership, strategy, executive remuneration, legal and corporate governance structures, tax arrangements, financial reporting, new organizational functions such as investor relations, and timing considerations around prospectus content. A family-owned enterprise might want to consider undertaking an IPO readiness assessment even if it seems too early. Sometimes family members prefer to wait for as long as possible before inviting external capital into the business – but they can wait too long, causing the enterprise to miss out on vital growth opportunities.
5. Review the enterprise’s corporate governance framework
To attract external equity, a family-owned enterprise typically has to prove that it has a solid governance framework in place. So, the family should start off an internal dialogue around governance at an early stage, to ensure that the enterprise’s governance is as good as it can be by the time it lists. Undertaking an IPO readiness assessment will help in this respect. Governance is key to managing the expectations of family members around the IPO and its likely implications for both the business and the family going forward.
An IPO can be a challenging and lengthy journey – and there are no cast-iron guarantees of success. That said, there are many ways for families to increase the likelihood of their enterprise making a successful transition from private to public, with all the benefits that entails. After all, raising external capital is not just a great way to strengthen family enterprises. It can also enable the owners of those enterprises to realize their ambitions and unlock their full potential.