Getting Ready for an IPO – Key Steps for Companies to Take in Preparation

ByrneWallace, in conjunction with the Irish Stock Exchange and Goodbody Stockbrokers recently hosted a seminar aimed at debunking the myths surrounding companies going public.  

At the event, Gerry Beausang Head of Capital Markets outlined the key considerations for a company taking the first steps towards an IPO.

These steps are as follows:

1. Early Assessment

Corporates considering flotation should carry out an early assessment of the company's affairs, focussing on establishing robust corporate governance and financial reporting procedures.

An aligned board of directors, strict internal controls and reporting procedures and fit for purpose IT and practice management systems will all be required. Early preparation in these areas will make the transition to life on the stock market much more seamless. Weaknesses or deficiencies in these processes should be identified and resolved. This will be a useful exercise for any company preparing to source external capital, even if this does not happen through an IPO.

2. Compelling Equity Story

A major part of any IPO journey is being able to tell a compelling story that will instil investor confidence in the company.

Be prepared to tell and vouch for your company's story from an early stage in the process, coupled with a focussed and strategy-led business plan for the future. Shape your story by looking to the competitive landscape and identifying what sets your company aside from others in the market.

3. Experienced Leadership

An executive team with an established track record and a strong board of directors are key to demonstrating credibility to your investor base throughout the IPO process. Consider carefully the management team that is in place and whether or not strategic additions need to be made. This should be viewed as an opportunity to bring in sectoral experience with different perspectives that will add value to the business.  

Bear in mind that in order to be fit for flotation, a company must also have suitably qualified non-executive directors. Appointment of non-executive directors should not be viewed as just a ‘box ticking’ exercise. Getting the balance right between the non-executive directors, who will both challenge and support the management team, and the executives, is important. Appropriate candidates should, in consultation with the company's advisors, be identified at an early stage. If necessary, consider engaging recruitment agencies to source quality candidates. 

4. Advisors

Engage experienced advisors from the start of the process to include your legal, financial and accounting, broker and PR teams. A successful IPO will be a joint effort. Bringing the correct advisors on board in the early stages will ensure an achievable timeline is established from the outset.

5. Stock Exchange Relations

Involve your chosen stock exchange(s) in your IPO journey from an early stage. The Stock Exchange is there to aid a successful IPO and can provide invaluable knowledge and experienced advice. The Irish Stock Exchange  runs an IPO Ready programme specifically aimed at preparing companies for an IPO.

6. Become Investor Ready

Investors tend to look primarily to financial factors especially: debt to equity ratios, earnings per share growth, sales growth, profitability and EBITDA growth. Underlying revenue growth drives valuation.  

Non-financial factors which an investor can also consider usually include things like: quality of management, brand strength, corporate strategy and execution, operational effectiveness and corporate governance.  

The company should benchmark its performance in these areas against its main competitors in the period coming up to the IPO.  

Investor roadshows are an essential forum to build investor relationships and a useful feedback mechanism.  

A database of every meeting with potential investors should be maintained and issues arising and questions posed by the investors should be logged to help identify matters requiring resolution.  

Talking to investors regularly will help a company understand the balance between what information you must disclose and what information you can disclose to the investor base.

7. Due Diligence

The sponsor or nominated advisor (depending on the market on which the company is listing) in an IPO and its lawyers will conduct extensive due diligence on the company, including a thorough review of minute books, share capital history, key employment contracts and material agreements. 

The company should anticipate what materials the sponsor or nominated advisor and its lawyers will want to review, and begin organising these documents to facilitate the due diligence process.  

Virtual data rooms are typically used to make the process as efficient as possible. Documents should be organised into appropriate sections and posted on the VDR as soon as the IPO process commences in earnest. 

8. Working Group

To aid the assessment and implementation of the structures and procedures necessary for a public company, establish an internal working group and assign responsibilities and timelines from the start of the process.  

Creation of an inside information list may be required before the company goes public.  Through having an IPO focussed working group, the company can limit the sharing of information to within that group

9. Legal Disputes

The company should analyse any pending or threatened legal disputes and consider whether any of these disputes could damage its ability to carry out the IPO. If there are any such disputes, the company will need to gauge the impact that carrying out an IPO may have on its negotiating position in these disputes. Parties in litigation will often be less likely to settle for a reasonable amount if they know the company is in an IPO process.  

If the company is thinking of instigating a dispute with another party, it will need to weigh up its effect on the IPO.

10. Confidentiality Provisions

Disclosure rules will require the company, in the prospectus/admission document, to make public the key terms of its material commercial agreements. The company should make an assessment as to which agreements will likely fall into this category and review these agreements for confidentiality provisions that will need to be waived by the counterparty.

11. Company Website

There should be an examination of the company’s website to make sure that the information there is accurate and up to date. 

The company should work with its advisors to make sure that the website is also compliant with the listing rules of the exchange in question.  

In addition, securities laws requirements should be adhered to with respect to access to prospectuses/admission documents and documents of this like.  

Appropriate blockers should be put in place to prevent investors in certain jurisdictions accessing these documents, without providing certain necessary confirmations. Legal advice on this piece is important.

12. Public Company Mindset

The directors and senior management will need to ensure they are prepared for the difference between being a private company and a public company. 

Significant management time will need to be invested in the IPO process and, in the aftermath as the company gets used to its new reporting and disclosure environment.  

The financial team will need to be ready to produce interim financial statements in the required time frames.

Perhaps most importantly, senior management will need to realise that they will be answerable to a new constituency, public company shareholders (often institutional).  

The support of a good broker is crucial to this relationship.  This said, in particular for companies that might have one large private equity shareholder primarily concerned with the short term, a successful IPO can give the management team more control to plan for the long term growth and scaling of the company.

For more information or advice if your company is considering an initial public offering, contact any member of the ByrneWallace Capital Markets team.