Congratulations! You’re taking your company public. An initial public offering (IPO) could be your company’s most rewarding—and challenging—capital markets transaction, an opportunity to reward your investors and attract the capital you need to grow.
Although you know you’ll be needing help from investment bankers, lawyers and accountants, when do you bring them in? How will you know if their interests align with yours? And how are you going to manage the challenges of going public without taking your eye off the business?
These are just some of the issues an IPO advisor can help you resolve. While perhaps not the first outside resource you think of when selecting your deal team, an experienced IPO advisor could be the deciding factor in making your IPO smooth and successful.
Too often, IPO teams are fragmented. While lawyers, bankers, and auditors bring different levels of expertise that can help a company head off certain issues, they often have diverse agendas that compete for management’s time and can challenge management’s ability to control the transaction. Effective IPO advisors, by contrast, share the company’s goals and can anticipate and resolve a broad array of transaction challenges before they affect value.
Before we get too far, you may be asking who, specifically, is an IPO advisor, and what is their role? Typically, an IPO advisor is a CPA with strong SEC registration experience and project management skills. In the past, a company’s external auditor may have filled this role. But with current independence rules limiting the external auditor’s roles and responsibilities, it may be more efficient to have another service provider help plan the IPO, manage the preparation of the financial statements or orchestrate the registration process. Engaging an IPO advisor early in the process to perform these functions allows top managers to focus on those aspects of the IPO process, such as marketing, where they can add the most value.
Delays and unforeseen problems are the biggest deterrents to a successful IPO, as they require management to invest more of its time and company resources in the transaction. If not resolved quickly, unanticipated issues can diminish the market’s confidence in management, damage brands, cause key employees to leave, raise the company’s cost of capital, and ultimately lower the value of the IPO as market pricing windows are missed. Even worse, the company may have to abandon its IPO.
Controllable challenges that can derail the IPO process fall into two general buckets: corporate governance/organizational issues and IPO registration process issues. The former involve anticipating and preparing for the rigors of life as a public company. An experienced IPO advisor can offer guidance on setting up an audit committee, the composition of the board, and establishing public company certification and accelerated financial reporting processes. These advisors can also help identify the necessary cultural, behavioral, and process changes that budgeting, forecasting, accounting, investor relations and human resources should adopt.
Experienced IPO advisors help companies avoid the pitfalls of the registration process by helping management anticipate issues that can surface during the SEC’s review of the company’s disclosures and financial statements. Companies often underestimate the nature and extent of this process, and failure to prepare early can lead to an embarrassing restatement late in the process when the consequences are material to the deal. You can mitigate this risk by engaging an IPO advisor soon after you’ve made the decision to go public, so they assist in planning and managing the transaction.
By identifying governance, reporting, and structural issues early, managing expectations, and advising on the SEC registration process, an experienced IPO advisor can free management to focus its time and effort where it adds the most value: the marketing phase of the IPO. There is a significant correlation between the amount of time management spends on marketing—including marketing to investment bankers—and the price achieved. For example, if management has to spend time resolving financial reporting issues late in the game, when it should focus on marketing, deal costs rise and deal value often decreases. By surfacing potential deal-breaking issues early in the IPO process and overseeing the transition from a private to a public company, an experienced IPO advisor can help maximize transaction value and minimize overall deal costs.
How do they do this? By providing dedicated, tenured deal advisors to address unique issues as soon as they surface. By assessing a business’s readiness to become a public company in a timely manner, and identifying and coordinating the resolution of any organizational factors that could keep it from meeting its post-registration legal and regulatory requirements. By facilitating communication among all transaction team members, helping to prepare registration documents, and advising on the transaction structure and comfort letter process.
IPO advisors minimize the risks and costs associated with a failed IPO by identifying and resolving a wide range of transaction challenges early, before they impede the IPO process, run up costs, or dilute deal value. That’s why selecting the right IPO advisor may be the most important choice a company makes once it decides to go public.
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