Companies need to take certain considerations into account before embarking on the listing process
By MAX LOH 12 March 2010
What a difference a year makes! Seeking an initial public offering (IPO) was hardly a subject of interest since the latter part of 2008 when the world was mired in an unprecedented financial crisis, resulting in an uncertain economic environment, weak stock market conditions and negative investor sentiment. All this led to a sharp deceleration in activities in IPO markets around the world.
With the exception of a few dynamic and well-received companies, many companies that were planning to go public had postponed or aborted their IPO plans in the face of poor market sentiment and more stringent valuations.
In 2009, after stagnant markets in the first two quarters, IPO activity started to pick up in the second half of the year, principally driven by deals from the emerging economies of Asia and South America. This trend is set to continue, driven by the pent-up demand of companies seeking to raise capital for growth and expansion.
Together with the economy showing signs of recovery - albeit modest and gradual - and as a result, market sentiment improving, we can expect more companies, including those which have shelved their plans earlier, to go public in the year ahead.
We strongly believe that when a company embarks on an IPO, it is not just a transaction - it is a transformation. An IPO is not the end game but the beginning of a journey that propels an organisation to the next level. That is why we have been encouraging companies which are considering an IPO to make the best use of the lull period over the last 12 to 18 months to put in the groundwork to go public so that they are well-positioned to capitalise on an IPO once the market upturn arrives. But first, when contemplating an IPO, a company should consider whether it is the right option given its business goals and objectives, the current stage in its life cycle and its ability to handle changes as a public entity. Assuming that an IPO is the favoured approach, here are a few considerations that you should take into account as you embark on this significant journey.
Infrastructural change
An IPO transformation involves the acceptance and implementation of change - not just by executive management, but throughout every aspect of the business, organisation and corporate culture. Time and resources need to be allocated to educate the internal organisation on factors pertinent to operating as a public entity and being successful in the public domain. The systems, controls and policies that are adequate for a private company may not be best suited to grow the company or monitor its performance. The company’s legal, financial and risk-management infrastructure must be enhanced to facilitate regulatory compliance, manage risks, address key financial and reporting issues as well as provide achievable guidance and forecasts.
Businesses that successfully make the transition to life as a public company often start operating like one prior to listing. They ensure that all aspects of their business are ready, from operational excellence and competent personnel to communications policy and execution strategy.
The right team
Investors place a premium on the substance of management and the probability of execution of plans. The entire team must demonstrate commitment and operational excellence. The board of directors should be of sufficient size, structure, quality and depth with proven experience in strategic planning, business development, industry knowledge, financial and legal matters, and corporate governance. This will enable the proper guidance of decisions and the provision of requisite oversight.
Global IPO markets attract a diversity of geographies, industries and types of companies. Since capital invariably follows a good investment story wherever it is listed, almost all companies list on their increasingly liquid home exchanges.
Notwithstanding the above, in selecting a market in which to undertake an IPO, a company should consider the industry in which it operates, investor and market analyst preferences, developing trends, the amount of capital to be raised, the costs associated with raising the capital as well as the liquidity of a particular market.
Timing
Rather than trying to time the market, companies need to take the time to plan and prepare for an IPO. Successful IPO candidates begin the transformation process well in advance of going public. A well-prepared company that has addressed all potential issues will be able to move swiftly when the market is right.
Corporate governance and risk management
The ever-increasing emphasis on heightened governance standards means that companies clearly have to establish the appropriate oversight, policies and procedures, internal controls, by-laws and infrastructure to facilitate effective corporate governance practices.
Further, companies need a comprehensive process and structure to identify and manage risks. Creating a risk-management framework is not an exercise in bureaucracy but a way to manage the company’s risks prudently and effectively, and at the same time, provide management with the confidence to achieve growth.
Restructuring and tax planning
Companies need to plan and execute corporate and capital restructuring in order to ensure that they have an efficient and effective structure when going public. Key considerations include sufficiency of free float of shares, operational effectiveness as well as tax efficiency and dividend repatriation planning.
Maintaining focus on business
Preparing for an IPO is a time-consuming and arduous process and it is easy for management and employees to be distracted by the enormity of the task. Companies must strike a balance between managerial focus on the IPO transaction and the day-to-day operations of the company. Being well-prepared can lead to a successful IPO outcome but the best financial presentation and investor relations will not in itself lead to business profitability and success.
Selecting advisers
Selecting the right team of IPO advisers - investment bankers, underwriters, lawyers, accountants, investor relations specialists etc - is imperative in ensuring the company gets the right advice. For an IPO to be successful there should be effective communication and coordination among all parties including management. In addition, personal and tax wealth advisers may be appointed to assist with corporate and personal financial and wealth planning for the company’s executives and shareholders. It’s about going public, and being public.
Although an IPO may often be the single most important transaction in the company’s development, it is not a destination but a transformation. The real work begins once the company is public - keeping the promises made during the IPO and road show, managing the expectations of investors and analysts, and delivering growth and value.
The focus should not just be on going public but also on being public. Only by doing so will the company reap the maximum benefits of fund-raising, level up the company, maximise shareholders’ value and take that significant step towards accelerating business success and achieving market leadership.
The writer is assurance partner and Singapore IPO leader, Ernst & Young LLP
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IPO is just the start of the journey
Companies need to take certain considerations into account before embarking on the listing process
By MAX LOH
12 March 2010
What a difference a year makes! Seeking an initial public offering (IPO) was hardly a subject of interest since the latter part of 2008 when the world was mired in an unprecedented financial crisis, resulting in an uncertain economic environment, weak stock market conditions and negative investor sentiment. All this led to a sharp deceleration in activities in IPO markets around the world.
With the exception of a few dynamic and well-received companies, many companies that were planning to go public had postponed or aborted their IPO plans in the face of poor market sentiment and more stringent valuations.
In 2009, after stagnant markets in the first two quarters, IPO activity started to pick up in the second half of the year, principally driven by deals from the emerging economies of Asia and South America. This trend is set to continue, driven by the pent-up demand of companies seeking to raise capital for growth and expansion.
Together with the economy showing signs of recovery - albeit modest and gradual - and as a result, market sentiment improving, we can expect more companies, including those which have shelved their plans earlier, to go public in the year ahead.
We strongly believe that when a company embarks on an IPO, it is not just a transaction - it is a transformation. An IPO is not the end game but the beginning of a journey that propels an organisation to the next level. That is why we have been encouraging companies which are considering an IPO to make the best use of the lull period over the last 12 to 18 months to put in the groundwork to go public so that they are well-positioned to capitalise on an IPO once the market upturn arrives. But first, when contemplating an IPO, a company should consider whether it is the right option given its business goals and objectives, the current stage in its life cycle and its ability to handle changes as a public entity. Assuming that an IPO is the favoured approach, here are a few considerations that you should take into account as you embark on this significant journey.
Infrastructural change
An IPO transformation involves the acceptance and implementation of change - not just by executive management, but throughout every aspect of the business, organisation and corporate culture. Time and resources need to be allocated to educate the internal organisation on factors pertinent to operating as a public entity and being successful in the public domain. The systems, controls and policies that are adequate for a private company may not be best suited to grow the company or monitor its performance. The company’s legal, financial and risk-management infrastructure must be enhanced to facilitate regulatory compliance, manage risks, address key financial and reporting issues as well as provide achievable guidance and forecasts.
Businesses that successfully make the transition to life as a public company often start operating like one prior to listing. They ensure that all aspects of their business are ready, from operational excellence and competent personnel to communications policy and execution strategy.
The right team
Investors place a premium on the substance of management and the probability of execution of plans. The entire team must demonstrate commitment and operational excellence. The board of directors should be of sufficient size, structure, quality and depth with proven experience in strategic planning, business development, industry knowledge, financial and legal matters, and corporate governance. This will enable the proper guidance of decisions and the provision of requisite oversight.
Choice of market
Global IPO markets attract a diversity of geographies, industries and types of companies. Since capital invariably follows a good investment story wherever it is listed, almost all companies list on their increasingly liquid home exchanges.
Notwithstanding the above, in selecting a market in which to undertake an IPO, a company should consider the industry in which it operates, investor and market analyst preferences, developing trends, the amount of capital to be raised, the costs associated with raising the capital as well as the liquidity of a particular market.
Timing
Rather than trying to time the market, companies need to take the time to plan and prepare for an IPO. Successful IPO candidates begin the transformation process well in advance of going public. A well-prepared company that has addressed all potential issues will be able to move swiftly when the market is right.
Corporate governance and risk management
The ever-increasing emphasis on heightened governance standards means that companies clearly have to establish the appropriate oversight, policies and procedures, internal controls, by-laws and infrastructure to facilitate effective corporate governance practices.
Further, companies need a comprehensive process and structure to identify and manage risks. Creating a risk-management framework is not an exercise in bureaucracy but a way to manage the company’s risks prudently and effectively, and at the same time, provide management with the confidence to achieve growth.
Restructuring and tax planning
Companies need to plan and execute corporate and capital restructuring in order to ensure that they have an efficient and effective structure when going public. Key considerations include sufficiency of free float of shares, operational effectiveness as well as tax efficiency and dividend repatriation planning.
Maintaining focus on business
Preparing for an IPO is a time-consuming and arduous process and it is easy for management and employees to be distracted by the enormity of the task. Companies must strike a balance between managerial focus on the IPO transaction and the day-to-day operations of the company. Being well-prepared can lead to a successful IPO outcome but the best financial presentation and investor relations will not in itself lead to business profitability and success.
Selecting advisers
Selecting the right team of IPO advisers - investment bankers, underwriters, lawyers, accountants, investor relations specialists etc - is imperative in ensuring the company gets the right advice. For an IPO to be successful there should be effective communication and coordination among all parties including management. In addition, personal and tax wealth advisers may be appointed to assist with corporate and personal financial and wealth planning for the company’s executives and shareholders. It’s about going public, and being public.
Although an IPO may often be the single most important transaction in the company’s development, it is not a destination but a transformation. The real work begins once the company is public - keeping the promises made during the IPO and road show, managing the expectations of investors and analysts, and delivering growth and value.
The focus should not just be on going public but also on being public. Only by doing so will the company reap the maximum benefits of fund-raising, level up the company, maximise shareholders’ value and take that significant step towards accelerating business success and achieving market leadership.
The writer is assurance partner and Singapore IPO leader, Ernst & Young LLP
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