Transforming bold vision into a successful IPO journey

(First of two parts)

As the economy continues to recover, many entrepreneurs are contemplating how to raise funds through an initial public offering (IPO) and level up their game. Chief executive officers (CEOs) envision growth and set new goals such as investing for innovation, increasing brand awareness, and improving their companies’ credit worthiness.

In the face of current economic and geopolitical headwinds, rather than asking whether the markets are ready for IPO aspirants, the key question for CEOs pursuing their bold vision is, “What can we do to achieve a successful IPO journey?”

The IPO journey is more than just a financing event — it should be approached as a transformational process. Because this has to be a structured and managed transformation of the people, processes, systems, and culture of an organization, it is crucial for CEOs to perform an IPO readiness assessment and consider the following critical success factors to transform their bold vision into a successful IPO journey.

Even if a company assesses that the current environment is not ideal for fundraising, it can serve as an opportunity to plan and prepare for an IPO or any other strategic transaction. While waiting for significant markets and geopolitical uncertainties to settle, executives can embark upon their IPO journey.

Planning for an IPO involves a holistic discussion about the strategic options offered by the capital market. An IPO aspirant needs to design a multi-track approach that covers the options for listing (either direct or dual and secondary listing) as well as other financing methods such as private capital, debt, or a trade sale. Considering an array of exit and funding alternatives in an IPO readiness assessment is critical to achieve flexibility in the timing and pricing of alternatives and to exploit narrow IPO windows.

IPO aspirants should begin the IPO readiness process early to allow the pre-listing company to act and operate like a public company at least a year before the IPO. The preparation can start with a comprehensive IPO readiness assessment as a first step, ideally over a 12- to 24-month timeline. The IPO readiness assessment will serve as a diagnostic phase so that CEOs can identify opportunities for the transformation of certain key focus areas.

The IPO readiness process also includes building a strong IPO team with members from management, the board, and external advisors, among others. External advisors can be composed of bankers, lawyers, auditors, and investor relations advisors.

Assembling a powerful team begins from top management. Institutional investors will look to the CEO, who is mainly responsible for articulating and executing the company’s vision and business strategy, while the chief financial officer (CFO) will likely be focused on investor relations in a public company. A quality management team should also ideally include executives who have experience in IPOs and managing public companies.

A successful IPO can be characterized by a compelling equity story that captures the appetite of institutional investors. Hence, it is vital for CEOs to approach their IPO journey from an institutional investor’s perspective. Institutional investors mainly influence the movement in stock prices and include mutual funds, hedge funds, banks, insurance companies, pension funds, larger corporate issuers and other corporate finance intermediaries.

IPO aspirants need to recognize the need for enhanced corporate governance, recruiting qualified non-executive board members, improving internal controls, and forming a qualified audit committee. This also includes the need to fine-tune internal business operations through working capital management, proactively addressing regulatory risks and rationalizing the business structure.

Given the increased stakeholder demand for sustainability, IPO candidates must also be able to clearly articulate and demonstrate an embedded environmental, social and governance (ESG) strategy and culture, from climate change mitigation initiatives to promoting board and management diversity.

Investors usually base their IPO investment decisions on financial factors, especially debt to equity ratios, revenues, return on equity (RoE), profitability and earnings before interest, taxes, depreciation, and amortization (EBITDA). This also includes the capability of IPO candidates to comply with new financial and sustainability reporting standards and securities regulations.

IPO investment decisions may also be based on non-financial factors, including the quality of management, corporate strategy and execution, brand strength and operational efficiency, and corporate governance.

IPO candidates should also focus on profitability and cash flows or articulate a clear path to profitability. They must craft a compelling equity story backed by a strong track record of growth that sets their company apart from their peers while maximizing value for their stakeholders.

Although an IPO is a key turning point in the life of a company, market leaders should not treat an IPO as a one-time financial transaction — they must approach it as one defining step in a complex transformational journey from a private to a public company.

While IPO aspirants need to be cautious given the challenging capital market environment, CEOs must focus on preparing an equity story that addresses the concerns of institutional investors. This transformational process begins with IPO readiness and ample internal preparation, aiming towards a successful IPO journey even with the fleeting market window of opportunity.

The second part of this article will discuss additional elements that can contribute to the success of an IPO journey.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.


Aris C. Malantic is a partner and the Financial Accounting Advisory Services (FAAS) leader, and Jerwin C. Esquibel is a senior director under FAAS of SGV & Co.