Riding the IPO train

Launching an IPO is a journey of transformation from being a private company to a public company. You would need to enhance corporate governance, (i.e., the organisation’s systems and processes), evaluate external forces (i.e., compliance needs for a listed company) and create a plan of action (i.e., a step-by-step allocation of responsibilities against timelines).

You must gauge whether the right resources are involved to deliver the IPO and comply with listing requirements. It is imperative to build a separate IPO team with the necessary skill set, experience and credible track record pertaining to the industry, sector, operations, strategic planning, financial reporting and control, public listing and choosing the right set of advisers, including investment bankers, lawyers, accountants and investor relations firm.

Your brand is as big as your story! Create a credible growth story, detailing the long-term vision of your business through a detailed and robust business plan.

With increasing globalisation, you can now list in the domestic market or choose to go global. The selection of an exchange is a long-term strategic decision and is driven by factors such as regulatory framework, investor and customer base, valuation and liquidity. Eventually, your choice is dependent on which exchange can enhance the investment proposition given your company’s strategy and objectives of listing.

Change from a private to a public company is significant in terms of disclosures, financial reporting, analyst calls, corporate governance and dealing with stakeholders and the public. Hence, this involves the transformation of culture within the senior management and employees in terms of accountability and trust. Preparing and educating your team for this change would need to be enabled by proper change management and culture transformation journey to prepare the company well in advance for the IPO.

IPO is not just a milestone. It involves adapting to a new post-IPO normal, with focus on long-term sustainability and viability as well as increased scrutiny and perception by the market. Hence, you must build upon your IPO readiness study and work on the identified areas.

One of the most critical requirements for an IPO is the audited restated historical financial information in compliance with applicable standards - Ind AS, IFRS or US GAAP. Complexity in accounting treatment and contentious judgmental areas should be pre-cleared between auditors and management teams to avoid last-minute surprises.

Listed companies are subject to a higher degree of scrutiny by auditors and stakeholders. It is important to define the internal control framework, fill the gaps therein and set up an environment where the operating effectiveness of controls are tested regularly as per a plan. Similarly, for the purpose of writing prospectus and during a company’s life as a listed entity, there will be a heightened need for time-bound, good quality analytical information. At this stage, an IPO-bound company must evaluate the need for robust MIS structures.

A strong and transparent corporate governance structure is critical to create investor confidence and provide comfort over safety and growth of the funds invested. The key to building investor confidence is to have an experienced, strong, credible and independent board with a broad range of expertise. This board can guide the management of your company in achieving its corporate strategy whilst identifying, mitigating and managing risks.

For the IPO, your company may be required to create a capital structure that will not deter investors from investing in the proposition. You may need to reorganise your company’s group structure prior to the IPO and make changes in the holding company and legal entity structure. Many of the activities may involve the incorporation of companies and re-enter of contracts and other legal matters. It is essential that any restructuring is investigated in advance as it would have a direct impact on financial reporting.

It is important to engage with institutional investors early on in the process. Right set of anchor investors not just lend more credibility to the issue, but also help in setting valuation benchmarks for the company. Companies should try to bring in the right investment banker and advisers early on in the process who can suitably advise on valuation and engage with institutional investors. Further, an effective communication strategy around your company’s brand positioning is critical to attracting stakeholders such as investors, analysts, media, industry associations and financial institutions. Therefore, planned public relations (PR) activity and appropriate PR firm can help in amplification through the three phases –pre-IPO, price discovery and marketing and listing.

One of the most critical elements of the IPO process is the pricing of the issue and valuation of the company. Existing PE/VC investors and board along with the investment bankers and advisers need to work together to do a detailed valuation analysis and study based on comparable industry benchmarks and market multiples. IPO pricing is only start of the journey, and the real test for the company, is post IPO, in terms of company performance as well as stock price. Therefore, key is to set a sustainable price of the issue keeping in mind wider investor interests, and long term view and value creation for all stakeholders.

Capital markets regulators across the globe have specialist teams who review every word of the prospectus with a fine lens.

An IPO expert will be able to guide a listing aspirant based on the experience of undergoing the comment letter process.

After obtaining all the regulatory approvals, the IPO day is truly one of the key milestones of the company. Once listed, the responsibility and accountability of senior management and the board of directors increase significantly, to create trust accountability and transparency to investors and the wider stakeholder community. Hence, building a strong investor relations (IR) team and appointing an IR firm would be key to set up to establishing a robust and regular communication strategy and channel of the company’s business trends, financial performance and key events with the wider public.