10. April 2015–
For many an IPO is a pivotal moment in a company's life. But why not beginning from scratch by building reasonable and right infrastructures and processes and acting like a public company in a clever way? This better keeps strategic options open at all times. It also saves costs and time of a complex transformation from a private to a public company. Also for Private Equity and VC the IPO exit option regained importance with IPO activity - now at a 10 year record level.
Being smart keeping all options open
An IPO is a great opportunity to raise funds, to accelerate growth, finance innovation and achieve market leadership. This can boost the brand and increase a company’s exposure among stakeholders and the public. It raises the attractiveness of the company to top managers, who may be interested in joining the firm in its new public life. This gives founders and entrepreneurs also a new bonding instrument and a new opportunity to attract top management and to bring key people on board. Unlike M&A, an IPO can enable a company to continue functioning independently — without being absorbed by a larger entity — thus maintaining its strategic freedom.
Taking a company public is an exciting time, but with increasing transparency demands from shareholders, having a plan for what will happen after the bell rings is vital. The IPO process should be a structured and managed transformation of people, infrastructure, processes and the culture of an organization. Although the IPO execution phase generally lasts 90 to 120 days, the value journey begins at least a year or two before the IPO and continues well beyond it.
Investors are also clear about what they look for in a successful IPO. Good-quality companies priced right, run by the right team and with a good story to tell will command the attention of the market, even when market windows are opening and closing fast. Investors rank the top five success factors for IPOs as attractive pricing followed by a compelling equity story, confidence in management, the right timing and, last but not least, IPO readiness.
Keeping cool, getting off on the right foot
Companies that have completed a successful IPO know that the process involves the complete organization’s people, processes and culture. Businesses need to devote many months to advance planning, organization and teamwork before they are ready to go public. The journey to achieving public company status has to be prepared not only for the defining moment of the IPO ceremony, but also for a whole new phase of corporate life. That’s why market outperformers treat their IPO as a transformational process that brings change to every aspect of their business, organization and corporate culture.
Not all companies are fit for public life, but if it is the logical next step, an IPO readiness assessment is key to success. Ideally, senior managers take one or two days to workshop how going public fits with the company strategy, balance the benefits and risks of going public, identify and know more about the gaps to get IPO ready and then make plans to fill any identified gaps.
The IPO readiness assessment is a structured approach that begins at an early stage and is geared to guiding companies through a successful IPO to a strong debut in the capital markets. Executives want to gain a better understanding of the measures that matter — in other words, what it takes to win in the capital markets. The assessment is also a gap analysis. Its purpose is to diagnose those areas of the business which require the most development and greatest management attention before the IPO process kicks off, helping the company become listed more quickly and efficiently.
Taking the right spot at home or away
The decision to raise capital is no longer limited to exchanges in companies’ local markets — companies now have a real choice. Investors give an active consideration to the exchange venue when making their investment decisions. For them liquidity at the stock exchange and confidence in the regulatory system are key. The question of where to list is also a common and strategic issue. Globally an average of 10% executed their IPO abroad. Especially Wall Street developed gravity for European companies in the past three years.
Companies today have a wide range of options for registering in markets other than their local exchange. To achieve the right combination of corporate and capital market strategy for their IPO, companies can choose from more than 100 stock exchanges and listing options worldwide. But where is the stock exchange that’s right for your company? Does it make sense to go public or to have your primary listing outside your company’s country of incorporation? How mobile is your company on the capital market? Finding the answers to these questions can pose complex challenges — particularly if there are strategic benefits to listing the company far from its familiar national market.
Heading fast forward on the road to market leadership
The IPO is a milestone on the road to market leadership and the process will have created excitement about the company in the media and among investors, but over time that will fade unless you maintain the market’s interest. Companies need to build trust and cultivate effective relationships with a larger and more diverse body of investors. The public market is an unforgiving place as they insist on transparency and won’t tolerate surprises. To thrive, companies need to demonstrate to investors that they are successfully executing business plan and delivering on promises while ensuring regulatory compliance. Putting the IPO in context, refreshing and retelling the story and maintaining the pace of growth will keep investors awareness and attention.
For founders and entrepreneurs an IPO is like a “start” again in a new life with a public spotlight and not an end in itself. It can change the lives of the executives involved. Only proper and predictive planning from Zero to IPO and adherence to strong operational executing will forge the path to long-term success.
You want to learn more about how to prepare for an IPO? Dr. Martin Steinbach will be speaking at theHEUREKA Conference on 5 May 2015 in Berlin.