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Thinking of an IPO? Consider These Seven Issues

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Thinking of an IPO? Consider These Seven Issues

by Ben Beasley-Murray, KPMG Agenda Magazine, 01 February 2012
topics:
Finance and Banking
tags:
capital management initial public offering investor relations

The best way to ensure your flotation doesn’t sink is to think long, hard and critically about everything from resources to pricing and governance. Get it right and the rewards from an initial public offering (IPO) are immense

 
But the path from private to public is not necessarily straightforward or smooth, so here are seven issues for you to consider.
 
One: Be realistic
“The main thing we find,” says Linda Main, Head of KPMG’s Capital Markets Group and a partner in the UK firm, “is that companies underestimate the time and effort involved in an IPO.”
 
She points to KPMG research that shows 62% of executives and 81% of financial directors at companies seeking a listing spent more than half their time on the IPO. And 40% said the process took significantly longer than anticipated.
 
“We would advise companies considering an IPO to look into options earlier rather than later,” says Main. “There is a lot of planning and the process is a considerable drain on resources.”
 
Manfred Hannich, KPMG’s Global Head of Accounting Advisory Services and a partner in the German firm, agrees.
 
“It’s not simply an underestimation of how much internal resource will be used by the process but an overestimation of the company’s own resources,” he says. “Things may be slow in the beginning but it’s typically a five- to six-month process, and some companies may find themselves tied up in discussions with investment banks, lawyers or media strategists.”
 
Two: Step up for the step change
Companies looking to float can be taken aback by the step change required in reporting and communication.
 
“There’s a need for much more formal documentation,” says Main. “Things have to be much more structured. Minutes, documents, and records need to be prepared with people who are not familiar with the company in mind. Other issues, such as being more careful and making sure you don’t accidentally release price-sensitive information, will be completely new.”
 
KPMG’s research revealed that more than 60% of companies that floated considered that, with hindsight, upgrading their financial reporting would have enabled them to review the organization’s operating performance more efficiently. More than 70% upped the head count in their finance department because of the listing process.
 
Three: Are you really ready?
The combined challenge presented by due diligence, disclosure and transparency standards and the necessity of having robust corporate governance systems in place may prove too much for a company to list in the near term. Hence the importance of a timely investigation of whether an IPO is really feasible.
 
“It’s important that an IPO readiness review should be conducted,” says Hannich. “After this scan, you can formulate a list of to-dos, efficiencies and changes that must be made. The scan can help to identify potential medium- or long-term problems, some of which can be tackled after the listing.”
 

The shortcomings that could be highlighted would include a lack of formal risk management, problems with tax structures or weaknesses in financial reporting.

 
“You need to make sure you’re ready to go before you start the process,” says Hannich. “If you have to delay because of internal issues once you’ve got an investment bank on board that has seen a window, they are not going to be happy. Once you’ve started on this route, you can’t just stop.”
 
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