IPO : A journey from the dream to reality
All Growing businesses requires to raise equity to meet its requirement of fund. There are various option to raise equity like IPO, private equity, funding from angel investor etc. Out of various options, IPO is most complex, expensive but lucratively rewarding way of raising capital.
An IPO, or Initial Public Offering, is the process by which a privately-held company becomes publicly-traded by issuing shares to the general public through a stock exchange. The primary objectives include raising capital and providing liquidity to existing shareholders.
Taking your company public through an Initial Public Offering (IPO) is a monumental step that can offer numerous benefits, from access to capital for growth to increased visibility in the market. However, the journey to IPO readiness is a meticulous and multifaceted process that requires careful planning and execution. In this guide, we’ll explore the key steps and considerations to make your company IPO ready.
Understand and Evaluate “IPO” as an option
Before pursuing for the IPO journey, it’s essential to have a thorough understanding of the fundamentals of IPO, type of IPOs, various listing options, regulatory requirements, expectation of investor, etc .
Once you have a clear understanding of these matters, decide internally on time line of IPO, funding requirement, target valuation ,and dilution percentage. Also decide exchange to which IPO is going to be listed. Companies with smaller capitalization may also consider an SME IPO also.
The company should evaluate IPO as an option very critically. It should be compared with other option for raising capital or means of funds.
Start early
Starting early is one of the best ways to increase your chances of success in an IPO. One of the best way to drive success of the IPO is to start preparing early. With early start, the company can more organised and experience the following benefits.
a. The company will have a more time to develop a strong track records.
b. It will get more time to build relationship with key stake holders like investment banker, regulator, underwriters etc which will help to run IPO process smoothly.
c. It can identify potential issues and address it in advance, which can also help to avoid or minimise uncertainties
d. The company can save time and money both due to planned activities
e. Company will be able to fetch better valuation.
f. Companies can experience a more natural cultural transformation.
b. It will get more time to build relationship with key stake holders like investment banker, regulator, underwriters etc which will help to run IPO process smoothly.
c. It can identify potential issues and address it in advance, which can also help to avoid or minimise uncertainties
d. The company can save time and money both due to planned activities
e. Company will be able to fetch better valuation.
f. Companies can experience a more natural cultural transformation.
IPO Readiness Assessment
It is essential to understand the readiness of the company in all aspects related to IPOs. I have covered the same in detail in later part of this article but some examples are
a. Performance track records
b. Compliance adherence
c. Leadership team capabilities
d. Corporate governance
e. Internal control system
b. Compliance adherence
c. Leadership team capabilities
d. Corporate governance
e. Internal control system
With candid assessment, company will be able to identify potential gaps and action to bridge it.
Check organisation structure
Private limited companies are many times manged directly by promoters. Promoters are getting involved in each nut and bolt of the company, from day-to-day operations to strategic matters. While planning for IPO, it is very important to develop leadership team if it is not there. Strong leadership is required to manage the growth after IPO also. The company should review the present structure and recruit right people at right time as a part of preparation process.
Once the leadership team is in place, the company should access their capability to take company through IPO process and beyond. In case of requirement, the company should provide necessary training to leaders to cope with complexities of listed entities.
The company should prepare strong succession plan to ensure leadership pipe line of competent people in place.
Long term strategic planning
Strategic planning is very important exercise before raising equities. It will help to justify its funding requirement and help to attract investor. Key points to be considered for this activity will include following.
a. The long-term plan should be in alignment with vision, mission and strategies.
b. It should considered industry attractiveness, competitor profile and USP and swot of self.
c. Detailed financial model should be developed along with back up plan.
d. Proper monitoring mechanism should be developed. In case of deviation, the company should be able to use back up plan or take corrective action to make up the deviation.
e. Detailed plan should be able to identify funding requirement through equity, proposed utilisation and expected return to shareholders. It is of important that the company should be able to deliver what is promised.
f. The company has to clearly communicate the plan to all the stake holders including employees, investors, customers etc. This will help to ensure that every one is aligned to strategies of the company and working together to achieve the goal.
b. It should considered industry attractiveness, competitor profile and USP and swot of self.
c. Detailed financial model should be developed along with back up plan.
d. Proper monitoring mechanism should be developed. In case of deviation, the company should be able to use back up plan or take corrective action to make up the deviation.
e. Detailed plan should be able to identify funding requirement through equity, proposed utilisation and expected return to shareholders. It is of important that the company should be able to deliver what is promised.
f. The company has to clearly communicate the plan to all the stake holders including employees, investors, customers etc. This will help to ensure that every one is aligned to strategies of the company and working together to achieve the goal.
Migration to IND AS/ applicable GAAP.
In India, all listed companies and company in process of listing are required to follow INDAS. While you are planning to go for IPO, it is advisable to migrate to INDAS if you are planning to list in India. In case of planning to listing in any other countries, relevant GAAP needs to be adopted. This is complex and time-consuming process. Early adoption of applicable gaps help company in following ways
a. It will give more time to change accounting practices and make necessary adjustment.
b. It will help to avoid accounting surprised.
c. Investor preferred INDAS compliant company as it is easy to compare and more transparent.
b. It will help to avoid accounting surprised.
c. Investor preferred INDAS compliant company as it is easy to compare and more transparent.
Get finance house in order
Finance plays pivotal role during journey of IPO. The quality of books of accounts needs to evaluated and improvised is required. The book should be prepared as per applicable accounting standard.
The company should set up team for financial planning and analysis within organisation. This team will start preparing periodical budget, review of actual performance with budget /plan, developing various analytical reports and dash board. This will help to set tone on review of actual performance, seriousness of plan and clear communication among all concerned in case of deviation.
Compliance framework
Clean compliance track records help to establish positive credential for the company. While listed company is required to observe so many regulations, the company aspiring for listing should start developing zero tolerance towards noncompliance. The company should get legal due diligence done, identify and rectify potential risk and corrective action. It also work on development of team, identification of accountabilities, reporting and review system. Seek legal counsel to ensure your company is compliant with all applicable laws and regulations.
Performance track records and potential
It is very important to establish track records of year-on-year improvement in performance. Also, company should try to outperform competitor. The investors will be interested in well positioned company. It will help for fetching better valuation.
Apart from actual performance, investors will be interested in growth potential of the company. While companies can demonstrate their performance to stakeholders by providing information about their financial results, their market share, and their customer base, it can also demonstrate their potential to stakeholders by providing information about their product pipeline, their expansion plans, and their competitive advantages. It should clearly articulate future plan, industry attractiveness, government policies, competitor mapping etc.
By showcasing both actual performance and growth potential, the company can boost confidence of the investor.
Technology Infrastructure
The company should invest in technology and IT infrastructure to cope up with the expectation of the market. This will help to improve efficiency and profitability, improved control and securities, advance level of data analytics etc which all are essential for investor.
Risk Assessment and Mitigation
Risk management is important for all business entities but specifically important for company in process of IPO. Identify potential risks and develop strategies to mitigate them. The company should have risk management strategies and processes to review it regularly
Employee Stock Options and Incentive Plans
ESOP structuring may be an important activity for company in process of IPO. That will help to attract and retain top talent. Equity incentives can align the interests of employees with those of shareholders. The company should take help of expert to frame proper scheme.
Corporate governance
Better corporate governance is very important for company in process of IPO. It will give comfort to investor about protection of their interest and transparency and compatibility of management. It will also improve reputation of the company.
Start behaving as if you are listed entities
This is the mother of all requirement I discussed above. By starting to behave as if it is already listed entities, company can prepare itself for the transition to public ownership and increase their chances of success in the IPO process and beyond. It will be able to adopt the new norms very swiftly. The following are some specific activities which will help a company in process of listing.
a. Upgrade practice of corporate governance in all aspects
b. Start following more disclosure and transparency in financials. Building trust among potential investors through clear and honest communication is key.
c. Widen the board by adding versatility in expertise
d. Listed companies are required to report on adequacy of internal control system. Start working on strengthening internal control system, its efficacy as well as effectiveness both. Appoint independent consultant to evaluate it or develop in house team to do so.
e. Strengthen data base and analytical skill. Listed companies are expected to deal with investor and attend calls of analyst. They need to have a control on their data. Start building team for analysis and system to compile data. That will help in preparing content for prospectus and in IPO marketing
f. The company should start developing leadership team to present company’s vision, purpose and strategies.
b. Start following more disclosure and transparency in financials. Building trust among potential investors through clear and honest communication is key.
c. Widen the board by adding versatility in expertise
d. Listed companies are required to report on adequacy of internal control system. Start working on strengthening internal control system, its efficacy as well as effectiveness both. Appoint independent consultant to evaluate it or develop in house team to do so.
e. Strengthen data base and analytical skill. Listed companies are expected to deal with investor and attend calls of analyst. They need to have a control on their data. Start building team for analysis and system to compile data. That will help in preparing content for prospectus and in IPO marketing
f. The company should start developing leadership team to present company’s vision, purpose and strategies.
Develop IPO team
Building a team of trusted advisors is essential for a successful IPO. Selecting experienced underwriters, lawyers, and accountants is crucial. These professionals play a vital role in guiding you through the IPO process. Also, company needs to identify investment banker, expert for public relations, investor relation, communication etc.
Communication and Investor Relations
Crafting a compelling investment story is essential. Engage with potential investors through roadshows and presentations. Communication with investor and analyst post IPO is critical for maintaining market confidence.
Timing and Market Conditions
Evaluate the right time to go public. Consider current market conditions and their impact on the IPO process. Timing can significantly affect the success of your IPO.
Preparing for Due Diligence
Understand the due diligence process and organize your company’s records and documents meticulously. A well-prepared due diligence process can expedite your IPO.
Case Studies and Success Stories
Learn from the experiences of companies that have successfully gone public. Their journeys provide valuable insights into the IPO process and the challenges they overcame.
In conclusion, preparing your company for an IPO is a transformative journey that requires careful planning, expertise, and dedication. By following these steps and considering these critical factors, you can position your company for a successful IPO and unlock new opportunities for growth and expansion.
Remember that each company’s journey to IPO readiness is unique. Seek guidance from experienced professionals who can tailor the process to your specific needs and goals. With the right preparation, your company can take its place on the public stage and embark on a new chapter of growth and success.
