In the first of a 3-part series, we look at the pre-IPO process and all that it entails for businesses considering listing their business publicly. The Initial Public Offering, or IPO as it is more commonly known, is the process which a Private Limited Company applies to be listed on the stock exchange.
For businesses who have never done this before, it can be quite a daunting process – and one that we never advise you try on your own. We’ve broken the pre-IPO process down into 4 key phases.
- Business Review:
Before a company even considers an IPO it must internally audit whether it’s in a position to do so with a full business review. Understanding the issues that IPO cause and if the company can deal with the issues as they arise.
By undertaking an internal audit, its allows the company to understand and identify issues and then deal with them before the process begins. Planning and assessing in advance will help save both time and money, avoiding any issues that may arise when the IPO starts, therefore being prepared and more likely to complete the IPO transaction.
Types of things that need to be assessed include the company’s Corporate Structure, Board structure, Board & Senior Management Abilities, any issues that would prevent listing, Deal-Structuring, Tax check-up & requirements and all Internal Controls review
- Exploring IPO Options
There are many types of IPO a private limited company can use to list on the stock market. An Initial Public Offer can use a combination of Fixed Price or Book Building Methods.
Fixed Price: In the Fixed Price method shares are offered in advance to the investor. The Issue price is disclosed in the final Prospectus, which will go into detail regarding the variables that justify the price. The Final Price may not be in the draft prospectus as factors that determine the price may change during the period from filing to going public.
Book Building: In this method, underwriters try to establish a price which to offer the IPO, based on interest shown by private investors. Book building involves ‘building orders’ from these investors based on the number of shares requested and at what price they are willing to pay. In this case, interested investors need to registrar an interest before ‘closing of the book’. Potential Investors are not made aware of the price in advance, only an indicative price range is known. Once this happens the underwriter will establish an initial selling price for the offering.
For more information about types of IPO options available to you – read this -> When it’s time for an IPO: It’s time to know your type.
- IPO Team Considerations
Once the company has taken on an internal audit and outweighed the benefits and risks off the IPO, if the board approves, they can go ahead with the initial stages assembling an IPO management team. This will include underwriters, lawyers, auditors, printers, sponsors/nomads, advisors, brokers, PR firm and accountants.
The selection of an IPO team can be a long process. It may involve a “Beauty pageant” style selection method. With the company formally inviting the various roles with an invitation to tender. Each role will be approached by various businesses, who will present to the company why they should be given the role, outlining previous experience and why they are a ‘good fit’ for the task.
Once the IPO team has been selected by key management, they can then go ahead with planning the IPO as a collective. Ensuring that the company has high-quality advisors is vital and should be consider one of the key areas of the Pre-IPO process.
For some business, a company reorganisation may be necessary in order for floatation. This process enables a company to identify and change any issues prior to the IPO process beginning, that will potentially cause details or suspend the IPO. Undertaking a Pre-IPO Reorganisation full prepares the business for the complex IPO transaction. Reorganisation may include both accounting and legal procedures.
- Corporate Governance
Pre-Determining an appropriate governance structure can prepare a company for a successful IPO. Good governance procedures ensure a strong leadership team, whilst minimising risk and building a positive culture around the business to the benefit of shareholders. Strong governance can lead to prevention of harmful situations and subsequently presence in the media limelight for the wrong reasons.
This requires assessment of a number of areas, including things like the Structure and Function of Directors, Roles of Shareholder, Board and Management, Board Size, Board Skills and Capabilities, Clear Business Vision and Strategy, Risk Management and more.
Any company wishing to float needs to meet standards set by the listing authority. Standards include financial, operational and structure. The framework helps maintain market rules and quality of the listing market. Establishing an effective controls framework according to industry standardised practices. Moving on from outdated and redundant frameworks to reflect the current business environment.
If you are ready to consider entering into the IPO process, ensure that you surround yourself with the best team and route to success. Speak to us today to help you.