Underperforming listings, the threat of rate rises, Brexit, the US elections and the China slowdown has ramped up the pressure on the IPO market. However, volatility is not unprecedented and, when the IPO window opens again, companies need to take the following steps to take advantage of the opportunities
1 Think like an investor
Consider what will make your company attractive to investors – and seek out good advice on this. Examine whether areas such as shareholder return policies are right for volatile times, for example, and try and view your company as an investor might: Is your capital structure right? Are you focused enough on generating sales? Could you implement operational improvements?
2 Consider the alternatives
Given that it is very difficult to accurately predict when an IPO window may open, companies need to explore other options to ensure they can still meet their strategic objectives. “If you’re looking to raise cash for growth through an IPO and the market is closed, you need to be flexible,” says Reed Smith’s Aron Izower. “What other routes could you take to raise that capital in the interim, that would then allow you to list at a later date?”
3 Start early, stay late
Addressing accounting and auditing issues and getting the necessary financial statements prepared are steps that can take time and need focus. However, some other areas, such as tax planning and ensuring the right corporate governance structures are in place should not be overlooked as these can have long lead times.
4 Don’t forget about business as usual
Make sure you have the right resources in place to keep the firm running effectively while preparing for IPO. “Don’t prepare at the expense of running the business,” says Reed Smith’s Matt Gorman. “Both activities need to be undertaken at the same time – and having the right advisors to help with the preparation is a good way of ensuring resources are not stretched too thinly.”
5 Get your story straight
“There will always be some element of market volatility, but strong companies suffer less from this than those that go public on the hope of future performance,” says Reed Smith’s Herbert Kozlov. “Those approaching the public markets should be doing so with a strategy that goes beyond quarter-to-quarter reporting. We counsel our clients to take a deep breath and look at what the company’s total shareholder returns are on a multi-year, not a multi-month, basis.”
6 Avoid surprises
Investors react to surprises at the best of times, but volatile market conditions can lead to over-reaction. “Make sure the company is ready from a governance and disclosure perspective before the IPO,” says Kozlov. “Companies need to have already vetted their executive officers and directors, carefully analysed their historical financial performance and how that will be presented post-IPO, and learned what disclosure obligations they will have once they are public.”