Everything to know before your IPO

By Tony Tiscornia
Going public is one of the biggest steps a business can make. Tony Tiscornia discusses how to prepare for IPO while assessing the current market conditions

The initial public offering (IPO) process is robust. It’s one that starts the moment a company decides that it wants to offer its shares to the public, commencing a process commonly referred to as “IPO readiness” – a thorough and comprehensive procedure.

Google, VISA, Saudi Aramco, and UBER are just some of the world’s most notable companies to have gone public, yet many of us are clueless about the process. So, to fill in the gaps, we decided to explore what it actually means for a company to be IPO-ready, as well as the pros and cons to consider in today’s market. 

Why do companies decide to go public?

Companies choose to go public for many different reasons, but most are looking to raise capital to fund the next stage of growth and expansion for their business. For many, being a publicly listed company also gives them a stamp of legitimacy that helps them compete in the market. 

Regardless of the motivation, the pre-IPO phase is a major stress test for any company. As such, preparation for an IPO must start long before the company is ready to sell its shares to the public. 

How does IPO readiness begin?

The run-up to an IPO is the most critical period – it’s the time when the business needs to get its financial house in order and begin behaving like a public company, because it will face increased scrutiny from investors and regulators after it has listed. This can take much longer than most realise, so it’s in the company’s interest to start earlier rather than later.

A company must consider all aspects of its business, financial operations, internal controls, accounting, and financial statement reporting before making a decision. The business needs to identify the areas that need to be improved and raised up to public company standards. Some areas of focus, among others, can range from examining financial controls and risk management processes to evaluating whether the business meets different regulatory requirements, to considering whether the existing team has the skills needed to guide the company through an IPO and operate as a public company beyond the initial offering.  

Once everything is in order, the business prepares a registration statement to file with the appropriate exchange commission. After the commission reviews the application, the company will either be accepted – perhaps subject to certain amendments – or rejected. Once approved, the company will list a number of shares that will be available for sale through the chosen stock exchange. 

Prior to considering going public, it’s crucial that the business assesses whether it is realistically in a good position to support a successful public offering. There are several elements that should be considered in the decision-making process, including future growth potential, the company’s size and tangible assets, and the long-term business plan, to name but a few. Overall, it’s about whether the company’s financial processes are robust and scalable enough to support its growth, as well as able to withstand the increased regulatory and reporting burdens that come with being a public company. 

Understanding whether going public is the right step for your company 

One of the most important objectives for any business anticipating increased operational and reporting demands – as well as requirements from investors and regulators – is to implement back-office finance systems that provide a single source of truth for the company’s financial position. Doing so will instil confidence in the company’s financial operations and compliance in advance of being ready to list or seek additional funds, while also easing the burden of operating as a public company. However, Coupa’s research shows that nearly three in four (72%) high-growth businesses recognise their financial processes are not robust and scalable enough to support their growth plans.  

Setting up your company for a successful IPO is by no means a straightforward process, and there are many factors every business needs to consider as part of that. As a company that’s gone through this process ourselves and helped many companies – such as Uber and Slack – to do so as well, we know what it takes to build for scale and successfully IPO. We share those insights in detail in our five-point IPO readiness checklist, so that business leaders can take stock and prepare to reignite their acceleration plans as soon as it’s right for their organisation. 

The risks of going public

While IPOs offer an exciting opportunity for companies, they also come with risks. Companies will face increased public scrutiny from investors, the media and regulators. They must identify all the regulations with which they’ll need to comply, ensure their financial systems can easily be accessed by auditors and regulators, and be ready and able to produce accurate financial reports on a quarterly and ad-hoc basis.  

The IPO process can also be costly. Companies will be required to work with auditors and underwriters who have the potential to make or break an IPO, as they can delay or halt the IPO entirely if they find fault with a company’s financial records. One mistake can cost millions in fees and labour hours to correct.

As well as compliance risks, companies will need to manage a complex network of relationships with multiple stakeholders including directors, new and existing investors, regulators, law firms, issuing entities and offering underwriters. There is also the challenge of managing positive relations with investors if they grow dissatisfied with the company’s performance. 

Being a public company can also increase your competitive advantage in the market by giving customers and prospects a level of comfort regarding your capital position, financial stability, and overall longevity. 

IPO delays and going public in the current market

As the threat of a new recession looms large, IPOs are meaningfully down from last year. Having just emerged from the global pandemic, businesses now face fresh economic uncertainty. We saw a boom of IPOs in 2021 – a record year by most accounts. Yet, as we entered the second half of 2022, several companies, including BrewDog, Mishcon de Reya, and CVC, confirmed that they were stalling their IPOs.  

Breaking down the insights from Coupa’s recent research further, it’s clear that 31% of UK businesses are delaying their IPO due to rising interest rates, while 31% are stalling due to supply chain shortages. What’s more, a further 31% are holding off due to the recent stock market volatility, and 23% are halting due to rising inflation. 

Managing a business's finances is no doubt a complex process, and, combined with fast growth and pre-IPO preparation, this can be a major stress test for any company. But it’s important for businesses to find inspiration from their recent resilience and agility, as well as examples from the past, to emerge stronger from this latest set of challenges. 

Businesses that choose to delay their IPO may need to look elsewhere to access the capital they need to fund future growth, such as private investments or debt financing. Debt financing can be expensive, especially in an environment of rising interest rates.  

It is only sensible to delay an IPO during current market conditions. But holding tight and waiting for a sunnier day simply isn’t enough. Businesses now find themselves with extra time to prepare and ensure the right team, processes, governance, and technological tools are in place to help them implement these processes more easily. This will end up proving crucial to their growth ambitions.  

In the past, similar circumstances to those we face today have resulted in accomplished businesses. For instance, Airbnb, Asana, Slack, and Uber all navigated the 2008-2009 recession, yet launched and found huge success regardless. Looking even further back, both Microsoft and Apple were forged during the recession of the 1970s and launched soon after – and look where they are today. 

Today’s uncertainty will also pass. When it does, the businesses that will be ready to capitalise will be the ones who lay the groundwork now.


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