IPO: The Crown Jewel
The process of taking a company public through an initial public offering (IPO) is a significant milestone in its history. It not only provides access to public capital markets but also establishes the governance structure and finance processes that will support it over time. As such, it is critical to have an IPO-ready finance team that can manage the demands of the pre-IPO period and support the company once it becomes a public entity. In this article, we will explore five recommendations for preparing the finance team for an initial public offering.
1. Start the process early: An IPO is a complex and challenging undertaking that requires the company to create new systems, identify and address talent gaps, manage regulatory reviews, and build credibility with analysts and investors. Given the pace of the process, gaps in capabilities or systems will be exposed during the pre-IPO period, particularly if the company hasn't done financial disclosures in the past. Therefore, it is essential to start the process early, building out the team two years in advance and establishing systems and processes that provide transparency, enable accurate reporting and forecasting, and enable the evaluation of business performance on a quarterly basis.
2. Carefully define the CFO skill-set: Given the high stakes and risks inherent in an IPO process, it is crucial to have a CFO with previous IPO or public company experience, as they know how to communicate with external audiences and likely have existing relationships with key investors and analysts. They bring confidence to the process that translates into a willingness to ask the right questions, push back when necessary, and protect the brand. However, CFOs with prior experience taking a company public are in short supply, and most companies embarking on an IPO will do so with a CFO who is leading the process for the first time. Therefore, it is essential to carefully define the CFO skill-set, prioritizing other skills such as a thorough understanding of the drivers of the business, strong technical skills, and a commercial sensibility enabling them to articulate sophisticated concepts clearly and crisply to investors who are unlikely to have patience for long-winded explanations.
3. Think about IPO experience broadly across the team: CFOs without IPO experience can shepherd a successful public offering if they surround themselves with the right team of internal and external expertise, including individuals who have public company and IPO experience. The broad team can include the CEO, senior finance leaders, and outside advisers. As companies build out their teams in advance of an IPO, they prioritize IPO experience in new hires to complement an existing team without experience.
4. Place the right people in each role: A public company has to close the books accurately and in a timely manner; convert accounting data into actionable information; and accurately forecast financials. It's not unusual for private companies to lack the depth and breadth of talent required to operate as a public company finance function. Many finance roles are likely to change and grow leading up to the IPO and once the company is public. Therefore, it is critical to carefully select the advisers who will be members of the company's extended IPO team, investing sufficient time in evaluating and selecting advisers.
5. Plan for life as a public company (not just the IPO): Companies should think beyond the IPO to life as a public company. Analysts and investors are evaluating the strength and credibility of management based on their command of the business, the company's financials, and the broader business context. Therefore, management teams will have many decisions to make about what financial and operational information the company is comfortable providing to analysts. CFOs recommend engaging the analyst community early in the IPO planning process to allow for more time to explain the complexities of the business and understand the kinds of questions that are likely to arise during the formal roadshow.
In Conclusion, An initial public offering (IPO) is a challenging and risky undertaking, which is why many CEOs and private equity sponsors prefer a CFO who has experience leading an IPO in the past. However, these candidates are in short supply and high demand, making it difficult to find the ideal fit. In some cases, a public company CFO or an experienced financial executive with relevant industry experience may be a better choice. CFOs without IPO experience can still lead a successful public offering if they begin planning early, build a strong team of internal finance leaders and external advisers with IPO experience, and prioritize decisions that benefit the long-term health of the company.
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