How to plan for an IPO successfully
Timing and motivation are crucial when planning to go public - so is surrounding yourself with an experienced adviser network
2017 saw the IPO market boom with the likes of Snap listing, and others such as Airbnb and Uber declaring that they are not far behind. The number of IPOs on London’s Main Market and Aim jumped from 65 to 106, following the 2016 slump.
This year, this level of activity looks set to continue and while many smaller companies don’t spend time thinking about a listing strategy, it is wise to do so. If going through an IPO and listing is your end goal as an owner or manager, having a plan in place from the start will pay dividends in the long run. So, what are the three key points to consider?
Choose the right time for an IPO
Timing is crucial. Consider external factors, such as Brexit or the US presidential election in 2016, which could affect the global economic markets. The uncertainty of 2016 led to the lowest level of IPO activity since 2009, so ensure you evaluate the longer term effects of such seismic events.
Understanding the level of investor appetite at the time of listing is important, as is carefully considering wider market activity. Although there may never be a “right time” to float, a window where there is stable regulation, a bullish market and low volatility is best. Unsurprisingly it can be difficult to find a period of time where all three boxes are ticked! Feeling out the current market and having a solid strategy in place from the start will help ensure agility and flexibility once there is a peak in investor appetite.
Lessons can be learnt from Snap’s listing on the New York Stock Exchange in March last year. The shares offered to the public had no voting rights and were met with criticism. This approach may have meant that the founders could continue to pursue their “entrepreneur’s vision” without opposition, but many have questioned the choice of timing as the company’s share price subsequently plummeted. Both time and strategy are clearly key factors in determining the success of a float.
Why go public?
Motivation is a key consideration and often overlooked. The management team of any business considering an IPO need to be clear on the reasons for doing so. Going public should never be a vanity project or purely a means for the original founders to exit the business. Listing can be a costly process, so plans to float should be aligned with the company’s strategic goals as this will enable the senior team to set out clear priorities.
An IPO can raise a large amount of cash that could be used for hiring staff, building premises or creating new service lines or products, so it’s important to have a plan in place before listing.
Conversations during the planning phase should be had to ensure that all founders and the management team are aware of the desired outcome. Particularly as success is far from guaranteed, as demonstrated by YogaWorks last year when its IPO was pulled at the last minute due to “market conditions”.
Build an experienced adviser network
Advisers play an integral role within the IPO process and having experienced, supportive and strong individuals on board from the offset is vital. The planning process can distract management from the day-to-day running of the business, which needs to be maintained for investors to remain interested.
Listing can also occupy significant resource, both during and after the event, so having a team with a deep understanding of priorities will help in the preparations. Every IPO will be different, so if you’re a serial entrepreneur building a solid and experienced adviser network is definitely worth your time.
Each IPO is unique and there is no one size fits all approach, but these are the most important considerations that every business owner or member of senior management team should contemplate, not only at the outset of the process, but also during. The initial stages of an IPO can be daunting but taking the time to reflect on timing, motivation and your advisers will help you to prepare for success.
This article was contributed by chartered accountants and tax advisers haysmacintyre.