How to give an IPO the best chance of long-term success

No matter your circumstances, every organization is different – and faces different challenges and goals. And even if an IPO looks right today, no one can guarantee that equity market conditions will be right once the preparation is complete. This is why many companies prepare for a possible IPO at the same time as pursuing a trade sale, M&A or other funding.

To make sure you’re making the right move requires a good deal of investigation. And as with any significant strategic move, when weighing your options and determining the best moves forward, you should chart several options and consider different paths before fully committing to one choice.

This is in line with the first question from investors at an IPO road show:

Answering these fundamental questions is key to successfully going public. If looking for fresh growth, an IPO or a sale in the M&A market are valid strategic options for shareholders and entrepreneurs to consider alongside debt, loans from banks or bond offerings. But it’s not going to be the right option for everyone.

To ensure you’re making the right move, it’s important to evaluate all possible transactions that could serve as stepping stones or attractive alternatives to a public listing in the context of shareholder and corporate objectives – as well as which capital market, stock exchange and listing segment makes the most sense. And remember – while there are a number of benefits to going public there are also some downsides:

Consider these pros and cons carefully – and in addition, ask yourself:

• Do your financials make sense, and is your company’s performance consistent year after year?
• Is management in place and ready for the hurdles that await them?
• Is your ‘story’ ready to be told, and will it be embraced?

Getting ready for a public offering means implementing change throughout the business, organization and the corporate culture. As a public company, you will be subject to increased filing requirements, transparency, compliance, scrutiny by investors and analysts, and overall accountability for delivering on promises.

The most important thing is to approach the IPO as a transformational process rather than just a financing event – and to start early. From our more than 30 years’ experience working with companies before, during and after their journey to going public, we’ve identified four key phases – each with several important steps – to maximize your chances of success. Together, these form the framework of our Guide to Going Public.

Phase 1: Strategic considerations and IPO planning

12–24 months prior to IPO

• Evaluate strategic options and perform a health check, ideally an IPO readiness assessment and diagnostic. 
• Decide on the preferred option, a Plan B and set up resources and your IPO project management office. 
• Prepare group systems, new functions and tax optimization at the company and shareholder levels. 
• Start to build capital market infrastructures and/or make structural adjustments to achieve IPO readiness.

Phase 2: IPO preparation

6–12 months prior to IPO

• Fine-tune the business plan and IPO fact book, and prepare presentation materials for banks, analysts and investors.
• Build the right external IPO team (bankers, lawyers, auditors, investor relations and other advisors).
• Set the target IPO timetable, start due diligence, and prepare the offering concept.
• Fine-tune the equity story and valuation framework based on initial feedback from investors.

Phase 3: IPO transaction

1–6 months prior to IPO

• Prepare financial information and other important content for the first draft of the offering prospectus.
• Manage the filing process, finalize prospectus and seek approvals from the regulator and the stock exchange.
• Launch the investor road show, to attract the right investors in main pools of capital with the right market timing.
• Build the IPO order book, determine the issue price and allocate orders to investors.

Phase 4: IPO and being public

Post-IPO

• Enjoy the IPO ceremony and deliver on your promises as a public company that attracts more media attention.

• Mobilize investor relations, road shows and investor marketing based on the IR calendar.

• Manage investor expectations with efficient forecasting and the use IPO proceeds.

• Deliver high-quality external reporting and disclosures, and good corporate governance.

With the transaction out of the way, it might be tempting to relax and continue with a business as usual mind-set. But once your company goes public, the real work of running a newly public company begins. From our experience, if the company wants to excel in the market, it should keep moving forward with a consistent – if not amplified – pace.

Unless the market’s interest in the company is properly and carefully maintained after the IPO, the initial euphoria and press interest will quickly fade. The trading volume and value of the company’s shares may also decline.

This means an aftermarket strategy is vital to maintain the value and benefits of going public. Almost as soon as the IPO is over, the process of retelling and fine-tuning your company’s equity story begins.

Meeting – and managing – expectations

The public markets are an unforgiving place. Management must strive for accuracy in projections and forecasts so that targets are being met quarter after quarter. For a public company, a single negative news item that is not well managed by the Investor Relations (IR) function can have a significant impact on stock price.

But now that you’re public, you also need to remain in the public eye to maintain investor interest. Through ongoing dialogue, conference attendance and non-deal road shows, you should cultivate an open channel of outreach to potential investors and for targeting sell-side analysts from a broad universe of firms.

Today’s share trading is dominated by many high-speed global networks and remains a fast-moving environment with higher demand for faster IR response to investors’ requests. This means you must develop a proactive IR strategy that will attract the optimal ownership mix and long-term pipeline in the aftermarket – targeting the type of investors that will maximize liquidity and valuation.

High-performing companies delegate key communication responsibilities to their IR team. The IR officer will help to build your strategy and guide communications to stakeholders and the media throughout the entire process of launching the IPO – and after going public.

Sustaining your strategy for success

Private companies are often unaware of the level of accountability and scrutiny faced when going public. They often underestimate the time and skill needed to court a new pipeline of public investors and to maintain aftermarket support. Being newly public, you acquire a new range of stakeholders that will demand and require much greater transparency in your business.

Growth is the key driver for market leaders. Investors prefer companies that plan to use the IPO proceeds to accelerate growth, whether through expanding their operations, moving into new geographic markets, acquiring other companies, developing new products and services, enhancing marketing and branding or upgrading technology and infrastructure.

Market outperformers deliver long-term shareholder value by demonstrating consistently effective investor relations and finance functions and, most importantly, operational excellence.

The efforts that companies put into getting the business ready for public life is invaluable, but from our experience, this is only the foundation on which success is built. It’s vital to thoroughly prepare for an IPO and a sustained post-launch.