Going public: When your business should take the leap to IPO
The IPO market looks busy in 2018.
Despite uncertainty over Brexit, activity remains high with news of prominent listings Spotify and Dropbox continuing to hit the headlines.
This is encouraging if you’re a business owner or manager with an AIM (Alternative Investment Market) listing in your sights, but how do you know when it’s a good time to make that leap?
When considering going public, timing is crucial if your venture is to be a success.
Early planning is key and it is worth considering three points before deciding whether to embark upon this new journey: the external environment, internal factors, as well as life after an IPO.
Economic and political environment
The economic and political environment is crucial when considering whether to float your business.
2016 saw Britain vote to leave the EU and this caused IPO activity to drop to its lowest level since 2009.
When experiencing periods of global uncertainty, it’s important to evaluate the longer-term effects of such seismic events, the consequences of which are likely to be felt long after the initial occurrence.
Ensuring there is a thorough understanding of the level of investor appetite for your business throughout these periods is also essential.
Understanding the wider market activity will result in a more comprehensive assessment of the right time for an IPO.
When considering whether the time to float is right, it's important to first ask yourself, why now?
What strategic reasons are driving the move and what are your long-term objectives?
If there is a solid business case for listing, rather than a just a desire to be a public company, then now is a good time to consider the move.
It’s vital that that the timing of an IPO is right for the management team of your business.
A listing uses up a huge amount of time and resource which inevitably falls on a few senior individuals and diverts their attention away from ‘business as usual’.
Pass a critical eye over your management team early on in the planning process. Do you have the right team in place to deliver an IPO?
Do they tick all the boxes required to deliver the initial listing, work closely with your key advisers and remain focused throughout the process?
The management team will be under intense scrutiny from potential investors who will look for clarification that you have the right team to deliver a successful IPO.
When you have the right team in place, start planning early for a listing. Think about what layers of protection you have in place to ensure continuity of your business throughout the IPO journey.
There are no set milestones in place to help guide a business on timing. Some established businesses have strong revenues or profits, whereas some businesses are pre-revenue or loss making but predict strong future profits.
In all cases, the timing can be tested through pre-marketing roadshows. This allows your business to assess the investor appetite for their business before they decide to list.
It’s common for businesses to focus on the time before and during an IPO and forget that life afterwards becomes a whole new ball game.
The administrative, legal and governance requirements of a listed business are far greater than before and a public company is under much greater scrutiny.
The management team will continue to devote time to their new stakeholders and advisers after the IPO is complete. It’s crucial that the time input required post an IPO is also considered in the planning process.
Arguably there is never a ‘right time’ to float, but knowing the current market, having a solid strategy and a strong management team to steer the business through the process will ensure agility and flexibility once the appetite from investors is right.
This article was contributed by chartered accountants and tax advisers haysmacintyre.