Many private companies are considering an initial public offering (IPO) as a strategic option to grow their business. However, this process is a bit complicated and is a risky one. It requires detailed planning and strategic thinking to ensure long-term success.
In order to prepare for an IPO, the first step is to develop and communicate your equity narrative. This will convey to investors how you intend to create value, and how your company will stand out in the market. This is essential to establish an attractive valuation and attracting the interest of analysts, investment bankers and underwriters.
The next step is to assess the management team and leadership. An IPO is a risky venture therefore you need to be sure your management team is capable of handling it. For example an IPO could bring additional financial reporting requirements and tax implications, which may require adding an accountant or tax expert to the executive team. You’ll also have to decide whether to have dual class stock, which gives the founders and other managers different voting rights.
A strong record of financial accountability is essential for an IPO. This includes having a clearly-defined SOX programme, which should be in place and updated prior to the IPO. It’s also important to check your current system of records, including minutes, capitalization files, material agreements and historic options grants. This is crucial for meeting SEC and bank underwriter requirements. It’s crucial to determine if there are any potential “material weaknesses” in the company’s control systems to fix them prior to going public.