Posted by Jim DeLoach on Wednesday, March 18, 2015 - 09:01 | Follow me
It is common sense than an uncertain global economy slows IPO activity, and yet, the IPO pipeline is at near-record levels.
In the U.S. market alone, there were more than 270 IPOs priced in 2014, up 23 percent from the prior year. And total proceeds raised reached more than $85 billion, an increase of 55 percent compared with 2013.
My colleague Steve Hobbs, managing director of Protiviti’s Public Company Transformation solution, says that 2014 was one of the strongest IPO years in the last decade, fueled by legislation such as the JOBS Act, which was enacted in 2012 to help ease regulatory burdens on emerging growth companies.
The IPO appeal is immense. But what companies don’t know about the process can drive an offering off the rails in a hurry. Last November, Protiviti held a nationwide webinar highlighting key challenges and offering tips to help companies avoid common missteps. Here are some highlights from the discussion.
Challenge #1 – Investor Relations
Many companies underestimate the amount and intensity of preparation required, especially regarding the growing demand for transparency from regulators and shareholders.
Just how much is required? For Barracuda Networks, provider of cloud-connected security and storage solutions, the time from IPO process launch to its first public call in January 2014 spanned eight months.
The journey to public company readiness involves a complex array of tasks, deadlines and focal points that require significant time, effort and attention throughout the organization.
Among the many tasks Barracuda tackled: scheduling organizational meetings to educate management on operational metrics; staging a “test-the-waters roadshow” to meet with prospective investors and obtain their feedback; and even holding a full mock earnings call with syndicated analysts to practice interacting with the investment community.
Challenge #2 – Tone at the Top
Setting the proper tone at the top to encourage “buy-in” is a top priority.
Public companies operate in a fishbowl of public disclosure and regulatory compliance. Finance, at the center of IPO preparations, is usually well prepared by the end of the process; however, establishing a positive tone for compliance throughout the company is the job of executive management.
Another one of my colleagues, Gordon Tucker, managing director and leader of Protiviti’s Technology, Media and Communication Industry practice, recommends promoting compliance infrastructure not just as a system of controls, but as a tool for growth and scalability.
Challenge #3 – Documentation
Establishing documented policies and procedures is critical for expansion.
Beyond the initial buy-in, Tucker also emphasizes the importance of developing and documenting processes to ensure consistency and sustainability across the organization. If you want to be able to scale, new hires should be able to handle transactions according to well established and documented procedures.
Challenge #4 – IT Infrastructure
It is critical to properly assess the organization’s IT readiness.
An organization’s ability to conduct accurate, timely and effective financial reporting and regulatory compliance hinges on the strength of its applications and systems infrastructure. The topics that need to be addressed in this arena include selection and implementation of an enterprise resource planning (ERP) system and scaling of IT processes and governance. And during a time when cyberattacks routinely make headlines, it is imperative to evaluate IT security and privacy.
When Protiviti meets with pre-IPO companies’ executive teams, we ask the CFO:
- Do you know what assets you are trying to secure?
- Is there somebody in your organization who is responsible for securing the enterprise?
- Would you know if you were breached? And if you were, would you be prepared to respond in a timely manner?
If the answer to any of those questions is ”No,” then it’s probably time to take a look at the IT systems from a security perspective.
The four points above underscore certain of the key challenges of successfully executing an IPO. But they also show where proper preparation can boost the odds in your favor.
And I’ve only skimmed the surface here. For a more thorough analysis, check out the online version of our November 18 webinar titled “It’s What You Don’t Know That Can Affect Your IPO.”
This post is originally from The Protiviti View.