October 4, 2016
After a slow start to the year, the IPO market is open – the broader equity markets have rebounded since earlier in the year, follow-ons have picked up substantially from 2015 lows, and profitable deals are being well received. In Q3 2016, there were 40 IPOs raising $6.6 billion ; while the slow summer saw a decline in overall quarterly activity, the influx of deals in September indicates that investor appetite for new issuances is strong.
To help your company hit the IPO window, an IPO requires rigorous preparation, thoughtful management and active governance. Board members are key players in the decisions that are made and are ultimately responsible for ensuring the IPO process is run effectively and efficiently to ensure companies are successfully fueling their future.
How can a board ensure its management has the right plan in place for a smooth transition to the public markets? The key is to start asking the right questions well in advance of any IPO kickoff meeting.
Having supported and guided thousands of companies through their IPOs, there are 9 1/2 questions we’d advise boards ask in preparing for the IPO process, as outlined in a new paper, “Exploring an IPO: the 9 ½ questions boards should ask.” This paper is the first in a series, “The board’s guide to deals,” which will tackle six issues that boards should be prepared to discuss with management. We preview four of those questions here.
- How does management tell its equity story? Investors who understand industry dynamics and know the companies in your sector will wonder what makes your company special. Directors can help management improve both the story, how it’s delivered, and tell that story consistently over time.
- How prepared are we to be a public company—not just to go public? From 2011 to the second quarter of 2016, 26% of companies that went public reported material weaknesses in their Form S-1s. It’s the board’s role to ensure the fundamental processes and capabilities like financial planning and accounting, internal controls, financial reporting, tax, risk management – are all in place before an IPO.
- Is the executive team ready to lead a public company? The company may be ready, but boards need to ensure the management is prepared for higher levels of personal scrutiny and greater demands on their time after the company goes public. Not every company founder or leader is suited for this change in role—and some won’t see value in spending time on new public company matters. The Board should assess whether the current executive team has the talent and aptitude to handle these more subtle public company requirements.
- Is our board ready to be a public company board? Under NYSE and NASDAQ listing requirements, boards and certain committees must have a majority of independent directors. That means a board will likely need to replace at least some directors to meet independent thresholds and the appropriate mix of skills, experience, and diversity. Going public means the board needs to thoughtfully consider its composition and governance structures.
Boards that ask the right questions upfront and encourage their organizations to prepare early can help their organizations better succeed in IPOs. More engaged boards give organizations a head start in managing their compliance and governance obligations and the unknown risks that often emerge as a public company.
We invite you to read the full paper. Over the coming months, we will tackle other complex issues boards face in successfully executing on deals through a series of posts on our blog. Stay tuned for more.