Many private companies see an initial public offering as a way to grow their business. The process is not easy, carries significant risks and requires strategic thinking and careful plan to ensure long-term success.
The first step in preparing an IPO is to formulate and communicate your equity story, which communicates to investors your path toward value creation and differentiates your business from other companies. This is essential for establishing an attractive valuation and attracting the attention of investment bankers, analysts and underwriters.
The next step is to evaluate the leadership team and management. An IPO is a risky business and you must ensure that the management team you choose to work with can handle it. An IPO for instance, could come with tax implications and financial reporting requirements that could require the addition of a finance or a tax specialist to your executive team. It is also necessary to decide if you want to have dual class stock, which grants founders and other senior managers differential voting rights.
A track record of financial accountability is essential for an IPO. This includes having a clearly-defined SOX programme, which should be put in place and reviewed prior to the IPO. It is also important to review your current system of records. This includes capitalizations files, minutes material agreements, historical option grants. This is vital for ensuring that you meet SEC requirements and bank underwriters. It’s crucial to determine whether there are any “material weaknesses” in the company’s control systems to fix them prior to going public.
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