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Preparing for an IPO: A 6-Step Guide

In a previous article on DealRoom, we looked forward to the most anticipated Initial Public Offerings (IPOs) of 2021. But not all public listings are high profile.

For example, in the US, there are estimated to be a total of over 5,000 stock indices that cater for everything from small cap regional firms, many of which you’ll likely never come into contact with, all the way up to the blue chip companies listing on Nasdaq, NYSE and the Dow Jones.

What’s the attraction?

Well, probably the factor which links all of those companies in their desire to obtain a public listing, is that they want to raise capital.

Secondary issues usually include owners’ desires to divest some or all of their ownership when there’s no liquid private market for the company, the ability to gain greater exposure for the company and its goods or services, and as always, there may be an element of management hubris somewhere in the mix. 168

If you’re considering an IPO, be aware that it’s a time-consuming, expensive and challenging process.

Many companies have used "DealRoom for IPO" during that process and we can confirm from first-hand experience that the document load in the lead-up to an IPO exceeds almost any M&A transaction. That being said, a well-managed IPO can be the start of great things for companies of any size, so do read on for this brief primer on how to prepare for one.

In a previous article on DealRoom, we looked forward to the most anticipated Initial Public Offerings (IPOs) of 2021. But not all public listings are high profile.

For example, in the US, there are estimated to be a total of over 5,000 stock indices that cater for everything from small cap regional firms, many of which you’ll likely never come into contact with, all the way up to the blue chip companies listing on Nasdaq, NYSE and the Dow Jones.

What’s the attraction?

Well, probably the factor which links all of those companies in their desire to obtain a public listing, is that they want to raise capital.

Secondary issues usually include owners’ desires to divest some or all of their ownership when there’s no liquid private market for the company, the ability to gain greater exposure for the company and its goods or services, and as always, there may be an element of management hubris somewhere in the mix. 168

If you’re considering an IPO, be aware that it’s a time-consuming, expensive and challenging process.

Many companies have used "DealRoom for IPO" during that process and we can confirm from first-hand experience that the document load in the lead-up to an IPO exceeds almost any M&A transaction. That being said, a well-managed IPO can be the start of great things for companies of any size, so do read on for this brief primer on how to prepare for one.

How to prepare for an IPO

  1. Develop a Strong Understanding of Your Index
  2. Put Together Your IPO Team
  3. Construct a Board of Directors
  4. Get the Timing Right
  5. Preparing the Roadshow
  6. Ongoing Communication

1. Develop a Strong Understanding of Your Index

Any equity index comes with its own requirements. There will be common themes, such as audited financial statements, but there are specific costs, disclosures, corporate governance requirements and more associated with each individual index.

Understand these before beginning the process at all. It will help you choose which index suits your company best and save you from missing something important when you’re already some way into the process.

Check also
Due diligence checklist for IPO

2. Put Together Your IPO Team

A good team is as important for an IPO as it is for due diligence. You’ll need top notch accountants, legal experts, underwriters and probably some outside advisors specialized in IPOs before beginning the process.

A good place to start is with the experts on IPOs, who can talk you through the process, helping you understand who is going to be needed and when. And of course, that leads us to....

3. Construct a Board of Directors

If your company was just about to make a transformative change in strategy, which could make or break its future, who would you go to for a second opinion on the strategy?

That’s the question you should be asking yourself when thinking about board members. These should include a mix of industry veterans with financial, operational, and strategy experience. Look especially for their accomplishments in the near past and sound them out about your ideas for the direction of your company to see if they’re a strategic fit.  

4. Get the Timing Right

Timing, just as with mergers and acquisitions, is all important for IPOs. But be cognizant that there are two aspects to timing: external and internal. The market may be at the right moment, with liquidity abound, but your company may not be. The reverse is also true.

Experts in IPOS tend to believe that IPO being ‘internally’ ready is more important than the market, but there’s no rush here - mess up the IPO and you could do more damage than good.

5. Preparing the Roadshow

Why would anyone want to invest in your company?

That’s what underpins all of this. It’s also the message you have to craft for the investor roadshow, when you’ll be looking to appeal to a broad spectrum of investors and provide them with all kinds of extra support you probably didn’t envision at the start of the IPO process.

A good tip here is to ‘underpromise and over-deliver’: People don’t like nasty surprises further down the road, so keep it upbeat but don’t exaggerate your company’s growth prospects or it will come back to haunt you.

6. Ongoing Communication

Regardless of the size of your company, the role of investment analysts can be crucial, both before and after the IPO process. Establishing and maintaining good relationships with these analysts can be the difference between there being steady ongoing demand for your company’s stock and there being no liquidity at all in your equity.

Be communicative and helpful whenever they come calling. Good relations with analysts can generate significant long-term value for listed companies.

Conclusion

We advise that you think long and hard before opting for an IPO. It can be a highly worthwhile process, but we’ve also seen companies that get caught on an IPO merry-go-round - listing one year, going private the next, and then repeating steps one and two over and over - a fruitless exercise that might be avoided with better long-term planning.

If you do decide that an IPO is the best next step for your company, talk to us at DealRoom about how our virtual data rooms can enhance the process for you and your company.

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In a previous article on DealRoom, we looked forward to the most anticipated Initial Public Offerings (IPOs) of 2021. But not all public listings are high profile.

For example, in the US, there are estimated to be a total of over 5,000 stock indices that cater for everything from small cap regional firms, many of which you’ll likely never come into contact with, all the way up to the blue chip companies listing on Nasdaq, NYSE and the Dow Jones.

What’s the attraction?

Well, probably the factor which links all of those companies in their desire to obtain a public listing, is that they want to raise capital.

Secondary issues usually include owners’ desires to divest some or all of their ownership when there’s no liquid private market for the company, the ability to gain greater exposure for the company and its goods or services, and as always, there may be an element of management hubris somewhere in the mix. 168

If you’re considering an IPO, be aware that it’s a time-consuming, expensive and challenging process.

Many companies have used "DealRoom for IPO" during that process and we can confirm from first-hand experience that the document load in the lead-up to an IPO exceeds almost any M&A transaction. That being said, a well-managed IPO can be the start of great things for companies of any size, so do read on for this brief primer on how to prepare for one.

How to prepare for an IPO

  1. Develop a Strong Understanding of Your Index
  2. Put Together Your IPO Team
  3. Construct a Board of Directors
  4. Get the Timing Right
  5. Preparing the Roadshow
  6. Ongoing Communication

1. Develop a Strong Understanding of Your Index

Any equity index comes with its own requirements. There will be common themes, such as audited financial statements, but there are specific costs, disclosures, corporate governance requirements and more associated with each individual index.

Understand these before beginning the process at all. It will help you choose which index suits your company best and save you from missing something important when you’re already some way into the process.

Check also
Due diligence checklist for IPO

2. Put Together Your IPO Team

A good team is as important for an IPO as it is for due diligence. You’ll need top notch accountants, legal experts, underwriters and probably some outside advisors specialized in IPOs before beginning the process.

A good place to start is with the experts on IPOs, who can talk you through the process, helping you understand who is going to be needed and when. And of course, that leads us to....

3. Construct a Board of Directors

If your company was just about to make a transformative change in strategy, which could make or break its future, who would you go to for a second opinion on the strategy?

That’s the question you should be asking yourself when thinking about board members. These should include a mix of industry veterans with financial, operational, and strategy experience. Look especially for their accomplishments in the near past and sound them out about your ideas for the direction of your company to see if they’re a strategic fit.  

4. Get the Timing Right

Timing, just as with mergers and acquisitions, is all important for IPOs. But be cognizant that there are two aspects to timing: external and internal. The market may be at the right moment, with liquidity abound, but your company may not be. The reverse is also true.

Experts in IPOS tend to believe that IPO being ‘internally’ ready is more important than the market, but there’s no rush here - mess up the IPO and you could do more damage than good.

5. Preparing the Roadshow

Why would anyone want to invest in your company?

That’s what underpins all of this. It’s also the message you have to craft for the investor roadshow, when you’ll be looking to appeal to a broad spectrum of investors and provide them with all kinds of extra support you probably didn’t envision at the start of the IPO process.

A good tip here is to ‘underpromise and over-deliver’: People don’t like nasty surprises further down the road, so keep it upbeat but don’t exaggerate your company’s growth prospects or it will come back to haunt you.

6. Ongoing Communication

Regardless of the size of your company, the role of investment analysts can be crucial, both before and after the IPO process. Establishing and maintaining good relationships with these analysts can be the difference between there being steady ongoing demand for your company’s stock and there being no liquidity at all in your equity.

Be communicative and helpful whenever they come calling. Good relations with analysts can generate significant long-term value for listed companies.

Conclusion

We advise that you think long and hard before opting for an IPO. It can be a highly worthwhile process, but we’ve also seen companies that get caught on an IPO merry-go-round - listing one year, going private the next, and then repeating steps one and two over and over - a fruitless exercise that might be avoided with better long-term planning.

If you do decide that an IPO is the best next step for your company, talk to us at DealRoom about how our virtual data rooms can enhance the process for you and your company.

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