Navigating the IPO journey: Key preparation considerations for CFOs

As the global economy emerged from the pandemic, 2022 saw historically low levels of initial public offerings (IPOs). Despite initial signs of a rebound, the trend continued into 2023, impacted by economic headwinds and geopolitical pressures. However, the IPO market in the U.S. began to show signs of revival with 108 IPOs raising $19.4 billion, a notable increase from the previous year. Smaller issuers continued to dominate, delivering modest returns compared to larger IPOs.

The Special Purpose Acquisition Company (SPAC) market also saw fewer successful listings in 2023 attributable to new SEC rules that eliminated perceived advantages of de-SPAC transactions, pushing companies back towards traditional IPOs.

With the IPO market showing signs of recovery, CFO’s looking to enter the market must work to diligently prepare their companies, understanding exit activity, valuation trends, deal size, and sector-specific dynamics. Early preparation and assembling the right team are crucial to a successful IPO journey.

Evaluate the IPO pros and cons

Going public involves critical discussions about a company’s future, goals, and timing – and determining if it is a prudent path for the company.

Pros of an IPO include:

Ongoing access to capital markets
Flexibility in trading shares at fair value
Potential to monetize equity at a higher price-to-earnings multiple
Additional liquidity options for M&A
Enhanced brand and market perception
Attractive employee incentives (e.g., stock ownership plans)

Cons of an IPO include:

Reduced ownership for founders /owners
Significant listing and ongoing costs
Pressure to meet earnings targets and investor expectations
Increased transparency requirements
Management distraction from business operations
Enhanced audit and disclosure requirements

Careful consideration of these factors is crucial, as they can influence a company’s trajectory post-IPO.

Consider your organization’s current position

The IPO journey may require substantial changes to an organization, especially in its people and decision-making processes. When executed properly, these changes can position a company to successfully endure not only the IPO journey (typically 12 to 18 months) but also its time as a public company. One of the most critical steps to assess a company’s readiness to go public includes developing a compelling equity story that is supported by reliable financial reporting.

Key attributes that attract the market include:

Leading market position
Compelling investment thesis
Ability to forecast revenue growth and profitability
Proven management team and robust corporate governance

Performing a thorough IPO readiness assessment is crucial to helping organizations take a fresh look at processes, risks, controls, policies, and procedures, and allowing for informed decisions on necessary pre-IPO work or support needed.

Ready your organization – factors that drive success

Several factors drive success as an organization approaches an IPO:

Early Preparation: Establish a plan to allow for 12-18 months to implement necessary transformations
Engagement: Partner with internal and external resources, engaging key employees early
Key KPIs: Ensure key performance indicators are relevant and readily available
Investor Relations: Understand investor expectations and ensure strong governance
Regulatory Compliance: Stay current with regulations, including matters such as ESG
Capital Market Options: Explore all options for an exit event and maintain flexibility

Companies should be proactive in their preparations to ready their organizations for the IPO process as these efforts will ultimately bear fruit in the form of being prepared as the SEC reviews a company’s registration statement on Form S-1, which includes the necessary audited financial statements. Steps taken will flush out a variety of issues, including those that the SEC routinely challenges.

Assemble the right team

Ensuring you have an expert team is critical to success. In addition to the right internal team within the organization, building the right external team is also pivotal. This will include the selection of bankers, lawyers, auditors, investor relations, and advisors. Being prepared means transforming many aspects of the business, the organization’s culture, and key players’ roles and responsibilities. The combined team will need to be prepared and ultimately held accountable for increased filing requirements, heightened transparency, compliance with various rules and regulations, and scrutiny by regulators, investors, and analysts.

Completing an IPO is transformational – the journey requires an “all-in” approach – with the right guidance, preparation, and dedication. WilliamsMarston has a proven track record of successfully advising clients through the pre- and post-IPO process, offering valuable insight and transparency. Hear from one of WilliamsMarston’s clients as they share their experience and related success from the team’s specialized support – clearing the way for a smooth IPO process.