Preparing a company for an IPO

21PLCCross-borderQuarterly■July-September2007■Thejournalforsubscribersto:TimEllisFindthisarticleandrelatedmaterialsat’slifeandisachal-lenginganddynamicprocess.Thekeystomaximisingthevalueofacompanyandachievingasuccessfulinitialpublicoffering(IPO)arecarefulpreparationandplanningandtheappoint-mentofexperiencedadvisers.Inaddition,acompanyshouldhaveaclearunderstandingoftherequirementsofthecapitalmarketsandregulatoryenvironmentsinwhichitoperates.ThisarticlehighlightsthefollowingmainissuesacompanyshouldconsiderwhencontemplatinganIPO:Whetheritisreadytogopublic.TheteamthatneedstobeinplacetoprepareacompanyfortheIPO.©LegalandCommercialPublishingLtd2007.ThisarticlefirstappearedintheJulytoSeptember2007issueofPLCCross-borderQuarterly,andisreproducedwiththepermissionofthepublisher.Pleasesee:preparingacompanyforanIPOPLCCross-borderQuarterly■July-September2007■Thejournalforsubscribersto©LegalandCommercialPublishingLtd2007.ThisarticlefirstappearedintheJulytoSeptember2007issueofPLCCross-borderQuarterly,andisreproducedwiththepermissionofthepublisher.Pleasesee’ssecu-ritiestoinvestorsonapublicstockex-change.Asapreliminarymatter,acom-panyconsideringanIPOshouldaskitselfwhetheritisreadytogopublicgivenitscur-rentstageofdevelopmentandinlightofitsprospects.Morespecifically,thecompanyshouldconsiderwhetherithas:Astrongseniormanagementteaminplacewithsufficientpubliccompanyex-periencetomanageitslifeinthepublicspotlight.Ahistoryofrevenuegrowthandprof-itabilitywithstrongfinancialreportingcontrolsandprocedures.Aclearstrategytoachieveitsobjec-tives.Increasingly,investorshaveshownlittlepatienceforpubliccompaniesthatcan-not“hittheirnumbers”anddeliverontheirstrategies.Asaresult,itisimpor-tantthatacompanyconsideringgoingpubliccananswertheabovequestionsaf-firmativelyandwithconfidence.CompaniesusuallytrytotimeIPOsdur-ingbullmarketsthatareaccompaniedbystronginvestordemand.Acompanyshouldcarefullyconsiderthepotentialadvantagesanddisadvantagesofgoingpublicbeforeitmakesitsdecision(seebox,Goingpublic:advantagesanddis-advantages).TheIPOteamOnceacompanydecidestogopublic,oneofthefirststepsistoassembleanexperi-encedandtrustedIPOteamtoguidethecompanythroughtheprocess.Thisteamincludes:Internalmembers,suchasthecom-pany’sseniormanagement.Externalmembers,suchastheunder-writers,legalcounsel(forboththecom-panyandtheunderwriters),companyaccountantsandothers.Eachoftheseteammembershasanim-portantroleintheIPOprocess.SeniormanagementAcompany’sseniormanagementteamisthemostimportantparticipantintheIPOprocess.AnIPOwillrequireasignificantamountofseniormanagement’stimeandenergy,whichshouldnotbeunderesti-mated(seebox,ManaginganIPO).Ifthetransactioninvolvesanexitbyaprivateeq-uityfirm,itisincreasinglycommontoco-ordinatetheIPOtrackinparallelwithasaletracktocreatecompetitivepricetensionandmaximisevalue(referredtoasdual-tracktransactions).Inthesecircumstances,thebalancingactbetweenthedemandsofthedual-trackprocessandthedemandsofrunningacompany’sbusinessisevenmorechallengingforseniormanagement.BoardofdirectorsThecompany’sboardofdirectorsmustbekeptinformedduringtheprocessand,asaresult,theIPOtimetableshouldreflectboardmeetingsforthemainstepsintheIPOprocess.Tosatisfycorporategover-nancerequirements,itistypicallyneces-sarytoappointatleastoneortwonewmemberstotheboardofdirectorswhoareconsidered“independent”andtoformnewboardcommittees(forexample,audit,remunerationandnominationcommit-tees)(seebelow,Keyissuestoaddress:Cor-porategovernance).Identifyingsuitablecandidatesforappointmenttotheboardcantakeasignificantamountoftimeandeffort.Duetoconcernsoverpersonallia-bilityrelatingtotheIPO,potentialdirec-torsofteninsistthattheybeinvolvedintheIPOprocessatanearlystage,andwillusu-allywanttoreviewacompany’sindemnifi-cationandinsurancearrangements.UnderwritersTheselectionofunderwritersisanim-portantstepinassemblingacompany’sGoingpublicoffersanumberofpotentialadvantages,including:AbilitytoraisefundsintheIPOtofurtherthecompany’sbusinessplan.Havingpublicly-tradedsecuritiesthatthecompanycanuseasacquisitioncurrencyinthefuture.Abilitytoattractandretainpersonnelthroughemployeeshareoroptionschemesinrelationtopublicly-tradedshares.Liquidityforownersofthecompany,includinganyventurecapitalorotherprofes-sionalinvestors.Increasedaccesstofuturecapital.Increasedmarketprofileandstatureforthecompany.Goingpublicalsohasanumberofpotentialdisadv