Has your company recently considered going public? If so, you wouldn’t be alone. Many more companies have gone public in the last twelve months than in recent years. Additionally, many of these companies are doing it in record time. The rule of thumb for years was that the preparation window for a successful IPO should be between 18–24 months, if not longer. But now, numerous companies are going public in a year or less. Some of these companies are well positioned to shorten their timeline, while others are finding significant challenges post IPO due to inadequate post-IPO planning.
The IPO process is likely one of the most challenging processes that management will encounter. Many management teams typically look for external help from existing shareholders, lawyers and investment bankers to manage the process and needs such as near-term liquidity requirements, business plan development or compilation of data room diligence documents. They will likely seek expert guidance on the S-1 preparation, underwriting, roadshow management and ultimate IPO pricing.
Then after a successful IPO, many management teams will have earned the right to celebrate their success – and perhaps ring the bell! They will quickly pivot toward managing market expectations on growth, hitting projected targets and employing their new liquidity.
But the overall IPO process is not yet complete, by any means. In many ways, the internal work is just beginning. They may have had a successful IPO, but will the transition to being a public company be equally successful? The answer will depend on many variables driven primarily by five internal focus areas that are typically overlooked.
1. Ongoing investor relations plays a big part in successful IPOs.
Many companies lack an investor relations (IR) team prior to going public. Some will rely on an outsourced professional firm to handle some of the needs. And while this may have sufficed as a startup entity, thorough handling of the Company’s vision and performance will require more precise experience and knowledge than is often entrusted to external advisors.
The information demands that will be made by analysts and larger investors will be intensive. Having a dedicated IR leader or team may be necessary. Without IR, the role of defining market messaging will fall on the already-committed C-Suite.
2. Evaluate employee skillsets early to ensure a successful IPO.
Often, employees at private companies who find themselves at public companies simply do not have the skillsets that new reporting requirements will require of them. Consider these areas in particular:
- New Reporting Standards (PCAOB) – Requirements are likely to require earlier-than-anticipated adoption of recently issued accounting standards, some of which will require significantly more effort to implement.
- SEC Reporting – Private companies typically do not have staff who are experienced with SEC reporting and introduction of disclosure requirements will be burdensome.
- FP&A – Public companies will need to advance their financial planning activities to identify variances earlier or develop more granular forecasts. Responding to analysts will require a broader and more extensive review of financial results and forecasts.
Early evaluation of existing skillsets among the finance, accounting and tax departments will help to identify gaps where additional support is needed. These skills cannot be hired and trained far enough in advance, especially given a competitive hiring market.
3. Be cognizant of employee bandwidth.
Many private companies are accustomed to standard monthly reporting that only involves a significant increase in effort with year-end reporting. After the IPO, quarterly reporting will inflict additional deadlines to which the team is not accustomed. It will also require additional external support for and from the Company’s audit team related to reviews.
Adapting quickly to the increase in quarterly workload pressure can be a challenge for some. Thus, ensuring proper resource allocation among the team will permit faster turnaround times.
While upgrading the financial reporting systems at this time will also ensure that proper systems are in place to help produce timely reporting, implementation of these new systems and user training will also require significant effort from already impacted teams.
4. Don’t underestimate the work inherent in controls and Sarbanes–Oxley.
SOX implementation is cumbersome at best, and companies with strong existing control environments will still understand the burden of their new control environment. Given the upfront and ongoing costs associated with maintaining a SOX-compliant control environment, many private companies are likely to have not fully prepared their company ahead of their IPO.
Similarly to the aforementioned impact on employee bandwidth from reporting, a lean team prior to IPO will likely be in for a surprise as to the amount of effort required to satisfy SOX Sections 302 and 404, which require significant data tracking and disclosures.
Companies should consider performing readiness assessments early in the IPO preparation timeline. While some companies may have more forgiving timelines related to Section 404, such as Emerging Growth Companies, larger companies will not. And while EGCs have significantly longer to become compliant, they will still need to document and assess their internal controls.
5. Every unsuccessful and successful IPO has a cultural impact.
You cannot go through an IPO without impacting the culture of the Company. From changes in reporting requirements to the addition of new team members, from increased demands on certain roles or teams to how external stakeholders continue to view the success of the transaction – the path to a successful IPO will impact the Company’s culture. Manage communication around changes early and develop buy-in from the impacted teams as early as possible.
Get pre- and post-IPO support if you need it.
Any truly successful IPO requires management and internal teams to proactively adapt to the changing landscape. By putting energy toward the above focus areas that are often overlooked before and after the IPO process, management can prepare the company for a successful long-term outcome. If you need additional bandwidth or experienced external support, consider bringing in our IPO readiness consulting and public company support services team: