Getting IPO-ready

The success of an Initial Public Offering is dependent on several factors. However, can the probability of success be improved? Can the IPO journey be made smoother?

Yes — if the company has an effective IPO-readiness plan and addresses challenges in time. The process of going public is time consuming and requires advance planning, organisation and teamwork.

When the economic environment is right, companies that are fully prepared are best able to leverage the window of IPO opportunity.

An analysis of IPOs suggests that the following considerations play a crucial role in their success.

Start early

A common mistake is to rush into the IPO journey just a few months in advance. An executive survey by a large accounting firm showed that companies usually implemented time-consuming critical changes one to two years before going public (for example: strategic planning, building the right team, and financial and accounting systems).

Pre-IPO readiness diagnostic

The company should run a diagnostic on various work-streams to pinpoint gaps in systems and processes that need to be fixed before the IPO process — especially MIS, IT and financial reporting systems.

Building the right team

The IPO journey involves various work-streams such as accounting, taxation, legal, and investor relations. Companies should have a good internal team and advisors who can manage these work streams effectively. If in-house talent is scarce, then outside experts should be roped in.

Financial information

Companies planning an IPO should understand the kinds of financial information needed to be furnished in the prospectus, such as five-year restated financial information in accordance with Revised Schedule VI. If listing overseas, historical financial information will generally be required under IFRS or US GAAP. Companies should ramp up their finance team or call in expert assistance to churn out the information within the IPO timeline.

processes and infrastructure

Pre-listed companies need to improve their IT systems and processes, budgeting and forecasting capabilities, segment reporting, and assess readiness to comply with various regulatory requirements. Systems and processes should be strong enough to withstand the scrutiny that public listed companies routinely come under.

Corporate Governance

Public companies are subjected to stringent corporate governance requirements to protect shareholder interest. Experience suggests that recruiting qualified independent board members and enhancing internal control systems and processes are among the most challenging issues faced. Companies should institute a corporate governance framework and policy well ahead of listing, so that it gets inculcated in the organisation’s DNA.

investor relations

Investor relations and communication is crucial as shareholders, analysts and the financial press will critically evaluate a company’s prospect and business potential. Many companies hire specialists to manage this function. The company and the investor relation specialist should work to sustain the market’s interest in the company.

IPO roadshow

Completion of the roadshow is the most challenging step in the period between the publication of a company’s IPO prospectus and the final closing. This is because the road show will enable the company’s management to meet investors (especially institutional). A good roadshow is a catalyst for a successful IPO.

Jigar Parikh is Senior professional in a member firm of Ernst & Young Global

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