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Monday, September 8, 2014

IPO preparation best practices

By Linda A Perez

Planning to take your company public may be part of your company’s long-term strategic goals. Leadership teams make this decision for a variety of reasons-- primarily to raise capital for growth or acquisitions; for value creation; and for an exit strategy. But regardless of your ultimate long-term objectives, the key a successful IPO is careful planning.

There are several steps to a successful IPO, the first of which is actually making the decision to go public. Once the decision is made, your company must thoroughly prepare. The next step is executing the IPO. And finally, the now-public company must continue to grow, to evolve, and to succeed.

IPO preparation best practices: the steps

Once your leadership team has concluded that taking the company public is a sound strategic decision, the serious preparation must begin.

And as with all high-level business decisions, seeking professional advice is a crucial factor. An IPO advisor, well-respected and with long experience in your industry, is invaluable.

Step 1: a thorough review of your company

A thorough review is an essential first step to creating your business plan. Working with an IPO adviser to assess your business strategy will make the IPO process more efficient.

The review should consist of reviewing your business definition, a current market analysis and also analysis of future trends. At this stage, too, you must consider which markets you want to operate in as a public company. You must also develop exit strategies if you decide to leave particular markets.
Analysis of past IPOs reveals that potential investors often prefer companies with strong focus in just a few market sectors.

Your company’s products must also be analyzed, identifying those with strong potential. Products or services with clear growth potential will appeal to prospective investors.

Step 2: finalizing the corporate and management structure

You must have a clear corporate and management structure before preparing your prospectus for potential investors.

Analyze your existing corporate structure with tax advisers, and an IPO adviser. Tax arrangements appropriate for the private company may not be appropriate for a public company. Your company’s management structure must be clearly defined and formalized, though your management structure should be flexible.

Step 3: assembling the team

A specialized team is essential for a successful IPO. This team, led by the CEO, will come from within, and outside, your company. In addition to your existing board and management, you must include financial advisers, underwriters, lawyers, and auditors. And the best IPO adviser will be invaluable in helping assemble the team.

Financial advisers will help create the prospectus, and will provide strategic direction in selecting the underwriters. The underwriterssell your securities to the public.

Ensure you assemble a legal team with extensive experience in securities law. Lawyers are needed to ensure your company’s documentation complies with the relevant securities laws and regulations. Your legal team may assist in creating the prospectus, and will review the prospectus before submitting it to the SEC.

Auditors must also be experienced in securities law. They are also vital when preparing the prospectus, advising which financial statements are legally required.

Tax advisers are also necessary, and you will need a financial printer to print the prospectus.

Step 4: developing the timeline

The timeline is essentially a road map for your IPO, and is a key part of your project management. As with all strategic business goals, you must develop a timeline with specific benchmarks to ensure you meet all your objectives. Team members with previous IPO experience are invaluable when developing the timeline.

Step 5: developing the offering

The offering depends on the type of securities your company plans to issue, the number of securities issued, their price, and where they will be traded.

IPOs usually consist of common stock, but not always. You may decide to issue debt, multiple voting shares, or preferred stock.

The number and price range of shares are directly related. Your underwriters will advise on these issues, as underwriters prefer that your offering price is typical of the price in your industry. You must issue enough shares for a broad distribution to ensure a successful IPO.

Determining the price of your securities is often difficult, though your advisers and underwriters will help. Generally, the price range is developed at the beginning of the road show: when your are showing your prospectus to potential investors. But the final pricing decision is usually made the day the final prospectus is filed.

Successful IPO service are often launched at a modest price, not the highest possible. This will encourage an active aftermarket, which will see your company grow steadily.

About the author: Linda A Perez has been in the finance industry for the past 2 years. She is presently working at a finance company in Canada. She has her interests in cooking, photography, craft and painting. Follow her on https://www.facebook.com/linda.aperez.169

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