Going public – will an IPO float your boat?
The decision to go public or “IPO” a business is one of the most significant corporate decisions that any management team will face. The upsides can be significant with the company gaining access to more sources of capital, often with far deeper pockets, that can fuel the next stage of the development of the business. However, the process can be hugely time-consuming; bureaucratic and represent a massive culture shock to previously private businesses.
Here is our list of considerations for companies to mull over when running the slide-rule over a potential IPO:
- Is it right for the Company to go public?
Does it actually need any more capital to deliver its 5-year strategic plan? If so, are there sources of capital (banks, private individuals, VCs) that could provide the capital without resorting to the cost and potential intrusion of becoming a public company.
- Has the Company got a strong enough track record to float?
The external world will look very closely at the financial track record of the business to determine whether it is a viable investment. The company, therefore, must have at least 3 years of audited accounts without any “funnies” to impress investors. It must also have a compelling investment case so that investors believe that the business will continue to create shareholder value in the future.
- Does the Company have a management team with sufficient credibility to gain the confidence of investors?
Investors will also examine closely the track record of the management team to determine whether they are credible individuals to run the business and grow its earnings. Unsurprisingly the focus will be on proving the team’s experience, business success and integrity.
- Are the macro-economic factors in your favour?
Is the right time economically to float? Is the economy strong and is business confidence high? Are other flotations over-subscribed or are they being pulled for lack of interest? Very often it is not the right time to IPO because of factors entirely out of the control of the company’s management team.
- Are the costs warranted in going public? Will you get payback?
There could be large costs involved in a flotation. An analysis must be conducted to determine whether there is a business case for spending the company’s resources in this way.
- Does the Company have the right financial reporting; governance; investor relations and corporate communications’ teams to handle the IPO and then communicate effectively and legally with investors?
The organisational hierarchy required for a public company is entirely different from that for a private company. These job roles should be in place prior to flotation to ensure that the Company communicates effectively with the outside world in a format that satisfies both regulatory and legal requirements.
- Does the Company have the right support from other organisations to deliver the IPO and life after it?
Similarly, the company will have to ensure that it has the right team of suppliers and advisors to deliver both the IPO and to support the company post IPO. These include investment banks, auditors, lawyers, annual report, website and digital agencies.
If you can answer “yes” to all of these questions and you are prepared for the heightened level of scrutiny it may well be the right time to think about “going public”.
Author: Matthew Bates
Matthew is a highly skilled investor relations professional with considerable knowledge and experience of best practice communication with the City. He has worked in IR for over 12 years, delivering advice and hands-on support through demergers, flotations, the establishment of new IR departments, acquisitions, disposals, and changes of management as well as writing the copy for over 20 Annual Reports. AB and Matthew first worked together in 2014 with Matthew advising on structure and copy-writing for a FTSE250 company.