Preparing for an IPO

Preparing for an IPO

Learn more about the Main Market and why leading companies choose to list on the London Stock Exchange.

Preparing for an IPO

As a fast-growing private company you may be thinking of taking your company public at some point in the future. As you grow and expand your company an IPO can help you access capital through the public equity markets and transform your business. But preparing a company for an IPO isn’t something that can simply be done overnight. Careful thought, preparation, and planning are critical to a successful IPO. Companies should consider beginning the IPO readiness process early, at least a year before the IPO, so that as a private company you are starting to operate like a public company.

Are you ready?

Before embarking upon an IPO a company must base their decision on a realistic assessment of its business, management team, its stage of development and its prospects. A company must critically examine their readiness to handle increased regulatory and investor scrutiny, and make necessary changes to improve operational efficiency, and resolve any issues that may adversely affect the listing early on.

The IPO process needs substantial commitment from the key management team, leaving less time for them to carry out their daily jobs. Doing the initial preparation and ground work well before the actual IPO process starts allows for a smooth and efficient process, and the ability to take advantage of the optimum IPO window for your business.

Key Questions

There are some key questions a company needs to consider when making the transformation into a public company, including:

  • Management team and board – does the management team have sufficient depth and breadth to run a public company and be accountable to shareholders? If not will you need to recruit externally to satisfy corporate governance board requirements?
  • Business plan and growth prospects – does the company have a clearly defined vision for the future performance of the business that can be articulated credibly, clearly and quantifiably? Does the company have an attractive equity story for attracting investors?
  • Financial controls – does the company have robust financial and business infrastructure and comply with relevant standards? Is the business ready for the due diligence that will take place? The market expects companies to have proper financial controls in place, and financial reporting and accounting issues are a common cause of delays in the IPO process. 
  • Financial planning – have you considered putting in place employee and management compensation and incentive plans? Is there an appropriate tax structure in place for the company and management?
  • Raising capital – what is the appropriate valuation of the company? how much money does the business need to raise and how will it be used to develop the business? Are there existing shareholders selling their shares that need to be considered?
  • Investor relations – is the company ready for the additional scrutiny from a new set of stakeholders? Who will be responsible for interacting with existing shareholders, potential investors, research analysts and journalists?

Timing an IPO

The preparation phase is crucial and means executing the IPO can generally be completed within 5 months. However, the exact timetable will depend on a number of factors including market conditions and complexity of the deal. It is important that as a company you appoint professional advisers to support you through the listing process and ensure you meet the necessary rules and regulations. You will need to ensure that your team of advisers have the right experience and global network to help you achieve a successful IPO.

Getting prepared

In order for a company to be admitted to a public market you must produce an admission document/prospectus which your advisers will be instrumental in supporting you with and submitting to the appropriate regulator. This is an important legal document but also a marketing tool to help to sell shares to potential investors. It must contain up to date financial information and detailed information about a company’s business and management and will be subjected to rigorous due diligence. Your advisers will also assist the management team in the investor roadshow which involves a series of meetings with potential investors. It is senior management’s role to convey a compelling equity story on the road show to attract the optimal mix of investors and analysts.

Inevitably, addressing the IPO journey will involve something of an adjustment for many businesses, but with proper planning and a clear strategy companies can navigate any issues towards a relatively straightforward IPO.