The potential for growth in going public is vast, giving companies a new source of capital that can take their business model to the next level. However, it’s also a major decision to make. The process of preparing your company for an IPO and then executing it can, and in many cases should, take years. It’s also a transformation for your company, bringing on a whole new breed of stakeholders and altering the way you do business.
The IPO Readiness Panel at the 26th Annual ROTH Conference delved into these issues and more, giving an overview of all the things that a private company needs to know prior to making the leap to trading publicly.
The panel was introduced by Ted Roth, President of ROTH Capital Partners, moderated by Jack Hogoboom of Lowenstein Sadler, and the panelists were Douglas Chu, Senior Vice President for NYSE Capital Markets; R. Cromwell Coulson, President, CEO, and Director of OTC Market Group; Shari Mager, Managing Director with KPMG; and Timothy Fletcher, Managing Director with Aon.
Doug Chu opened the comments with a presentation showing that, after a major decrease in the number of IPOs during 2008 and 2009, things appeared to be on the rise again.
“The IPO market is, by definition, cyclical,” he said.
However, if the panel had one theme it was this: take caution, and take your time. The panelists repeatedly emphasized that an IPO is not a move to be taken lightly, and that not every company is ready (or will ever be ready) to become a publicly traded company.
“Not every company has what it takes, or even should have a business model that’s appropriate to be a stand-alone public company…,” said Chu. “It’s very difficult, it’s not for everyone. There’s a lot of costs and burden. Now, the upside is also pretty significant as well, but not every company will be a public company.”
“I think the most important thing… is predictability and visibility,” Chu continued. “You have to be able to … tell investors in the market: this is what we’re going to do, this is what the next quarter or a couple quarters are going to look like, and you have to be able to hit that. You have to know your business well enough to be able to make those types of … guiding comments…”
Moderator Jack Hogodoom emphasized the importance of Chu’s point that an IPO is not a process to enter into lightly. Even when a company’s decided that going public is the right choice, rushing the decision or the process can lead to more headaches than it’s worth.
“People need to understand that the IPO process can take six months from start to finish,” he said. “It’s basically a full-time job for your management team and your accountants and your lawyers. It’s an incredible distraction from operating your business … Preparation really is the key. And it may be difficult for smaller companies to marshal the resources that are necessary to get to the finish line. But the companies that are well prepared and have a game plan in place at the beginning are really the ones that have the highest degree of potential success.“
Shari Mager emphasized that an IPO that succeeds is usually one that has been planned well in advance.
“What I tell my clients is that you need to be thinking about preparation one to two years ahead of the transaction,” said Mager. “So if you back up from that six-month time frame Jack was talking about, at least the six months before that you should be heavily into your planning and your preparation.”
“And the reason I use that time frame for my clients is because planning is the most important part…,” she continued. “The more you can plan and prepare up front and really act like a public company before you’re required to do so, the easier that transition is.”
And Timothy Fletcher emphasized that there are consequences to making the wrong decision.
“We’re talking about a risky process, the IPO or an exit from an MNA,” he said. “There’s risk.”
In the end, the emphasis appeared to focus on careful, calculated consideration of the considerable benefits of going public against the very real risks of doing an IPO before a company is ready or in a way that’s disorganized.
“Remember, if and when you’re going public, you’re starting … a new part of your company’s lifecycle,” said Chu. “It’s not the end result. It is a liquidity event, but it’s not THE liquidity event. And you’re actually starting at a new starting line… it’s just the beginning of your life as a public company.”
“… if you deliver those results, your stock price will increase and everyone will be happy. … Long term greedy, not short term greedy.”
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