Acting like public firms a year or more before listing
That’s what successful IPOs do, E&Y study shows
By LYNETTE KHOO 11 November 2008
Successful IPOs act like public companies at least one year before listing, according to an Ernst & Young (E&Y) study.
The Measures That Matter 2008 survey identifies key performance measures for a successful IPO (initial public offerings). It covered 142 publicly traded companies that launched an IPO between 2001 and mid-2005, on one of the major stock markets in North America, Europe and Asia. Senior executives, predominantly CEOs and CFOs, participated in the phone interviews.
Under the study, E&Y also conducted a separate survey on 361 institutional investors to understand how they make decisions in IPO stock investment.
The second survey revealed that institutional investors, on average, base 60 per cent of their IPO investment decisions on financial performance measures and 40 per cent on non-financial.
The three most important financial measures are earnings per share growth (selected by 45 per cent of investors), Ebitda growth (44 per cent) and profitability growth (41 per cent).
Among non-financial factors, management credibility and experience was the key, with a 95 per cent vote. Half of the investors cite effectiveness of performance-based compensation policies as an investment consideration due to its bearing on a firm’s ability to recruit and retain highly talented senior management.
Investors also identified corporate strategy execution, quality of corporate strategy, corporate governance and brand strength as key non-financial measures.
Based on the first survey, some 20 per cent began building the right team more than 20 months before the IPO, while 33 per cent had started 12 to 24 months before listing.
Two-thirds of the companies under the study had implemented strategic planning, corporate tax planning, internal control systems, financial accounting and reporting issues at least 12 months prior to the IPO.
Executives of outperforming companies cite the change in composition and structure of the company board as one of the most beneficial changes for post-IPO value. But only a third had prepared board composition more than six months prior to listing.
Max Loh, IPO Leader and Partner, Assurance and Advisory Business Services at Ernst & Young LLP, recommends that companies can start preparing and positioning themselves 12 to 24 months ahead for listing while waiting for the current market unrest to settle.
‘They can look into implementing critical changes to their strategic and corporate tax planning, management team, financial accounting, reporting and internal controls,’ he said.
In the first survey, the three most challenging corporate governance issues cited by the company executives are recruiting qualified independent board members (selected by 48 per cent of respondents); enhancing internal controls (47 per cent); and forming a qualified audit committee (31 per cent).
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Acting like public firms a year or more before listing
That’s what successful IPOs do, E&Y study shows
By LYNETTE KHOO
11 November 2008
Successful IPOs act like public companies at least one year before listing, according to an Ernst & Young (E&Y) study.
The Measures That Matter 2008 survey identifies key performance measures for a successful IPO (initial public offerings). It covered 142 publicly traded companies that launched an IPO between 2001 and mid-2005, on one of the major stock markets in North America, Europe and Asia. Senior executives, predominantly CEOs and CFOs, participated in the phone interviews.
Under the study, E&Y also conducted a separate survey on 361 institutional investors to understand how they make decisions in IPO stock investment.
The second survey revealed that institutional investors, on average, base 60 per cent of their IPO investment decisions on financial performance measures and 40 per cent on non-financial.
The three most important financial measures are earnings per share growth (selected by 45 per cent of investors), Ebitda growth (44 per cent) and profitability growth (41 per cent).
Among non-financial factors, management credibility and experience was the key, with a 95 per cent vote. Half of the investors cite effectiveness of performance-based compensation policies as an investment consideration due to its bearing on a firm’s ability to recruit and retain highly talented senior management.
Investors also identified corporate strategy execution, quality of corporate strategy, corporate governance and brand strength as key non-financial measures.
Based on the first survey, some 20 per cent began building the right team more than 20 months before the IPO, while 33 per cent had started 12 to 24 months before listing.
Two-thirds of the companies under the study had implemented strategic planning, corporate tax planning, internal control systems, financial accounting and reporting issues at least 12 months prior to the IPO.
Executives of outperforming companies cite the change in composition and structure of the company board as one of the most beneficial changes for post-IPO value. But only a third had prepared board composition more than six months prior to listing.
Max Loh, IPO Leader and Partner, Assurance and Advisory Business Services at Ernst & Young LLP, recommends that companies can start preparing and positioning themselves 12 to 24 months ahead for listing while waiting for the current market unrest to settle.
‘They can look into implementing critical changes to their strategic and corporate tax planning, management team, financial accounting, reporting and internal controls,’ he said.
In the first survey, the three most challenging corporate governance issues cited by the company executives are recruiting qualified independent board members (selected by 48 per cent of respondents); enhancing internal controls (47 per cent); and forming a qualified audit committee (31 per cent).
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