So you want to take the IPO road?

20 Pages·2015·0.95 MB·English

DEAL ADVISORY
SO YOU WANT TO
TAKE THE IPO ROAD?
April 2015
IPO
The process
can be confusing
and complex
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
FOREWORD
Are you considering taking an IPO At KPMG, we know that the IPO process
journey? For many entrepreneurs and can be confusing and complex for
private equity firms, an Initial Public first-time travelers. That is why we have
Offering (IPO) is an objective in and of brought together a global network of
itself. For others, it offers a significant our sharpest and most experienced IPO
opportunity for growth and public and Capital Market professionals to help
awareness. guide you along the way. And having
successfully steered hundreds of private
But getting to the IPO destination –
companies down the path to IPO and
and knowing what lies beyond – can
beyond, we believe that we understand
be complicated and time consuming.
how to plan the right roadmap to make
There are no direct pathways. The only
your journey a success.
path is the long and winding type. And
there will almost certainly be risks and ENVISIONING THE JOURNEY
hazards along the way; signposts and This guide – and those that will
milestones to look out for; and a host of follow – will lay out some of the
suppliers and gurus that can either help key considerations, challenges and
you or hinder you. opportunities that must be considered
by any executive preparing for a journey
Indeed, the IPO journey is not for
to an IPO. Within these pages, we
backpackers. It takes rigorous planning,
provide actionable advice; valuable tips
reliable strategies and a lot of hard work.
and practical insights to help all types of
But for those intrepid travelers that can
private companies make their journey a
get this part right, the IPO journey could
success.
easily be the most rewarding adventure
a company can take. We’ll share our experience and pull back
the curtains on some of the common
pitfalls and misconceptions about
planning and executing an IPO. We’ll
also share industry best practices and
tips that we have learned along the way.
DEVELOPING A PRACTICAL TRAVEL
PLAN
We hope that this guide helps potential
IPO candidates to form a clearer
picture of the journey that lies ahead
of them. And while there are certainly
a number of complexities that must
be considered, we are confident that –
with the right guidance and support –
travelers can avoid many of the hazards
on the road.
But a simple guide cannot cover all of the
technicalities and complexities that are
found on the road to an IPO, and so we
strongly encourage potential travelers
to bring along an experienced IPO
professional who can turn insight into a
tailored and comprehensive roadmap.
Given our depth of experience
Manfred Hannich throughout our network of member
EMA Markets firms in more than 150 countries, we
Chief Operating Officer encourage you to contact KPMG to find
out how our professionals can help your
Linda Main company cut through the complexities
Head of UK Capital of an IPO and layout a safe travel plan to
Markets Partner help you reach your ultimate destination.
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
TABLE OF CONTENTS
02
Is it time for an IPO?
04
Getting in shape for the journey
08
Hazards you should avoid
10
How long will your trip take?
12
Choosing your travelling companions
15
Ten steps to a hazard-free pre-IPO journey
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
DEAL ADVISORY
IS IT TIME
FOR AN
IPO?
THE FIRST QUESTION YOU build their reputation and visibility in THE WISDOM OF
local and foreign markets, particularly
SHOULD ASK YOURSELF LOOKING BEFORE YOU
in cases where the company’s main
IS WHERE YOU WANT LEAP
focus of operations lies outside of
TO GO – AND MORE major markets and the developed
There are, however, a number of
economies.
IMPORTANTLY – WHY?
important draw-backs to going public
• Incentivize employees: that may not always be obvious before
The simple truth is that going public
corporate stock option programs starting the journey. Companies
may not be the right strategy for every
are a strong vehicle for driving considering the IPO process should be
company. The choice of destination will
employee engagement and tying aware that their organization may meet
fully depend on the objective you are trying
compensation to the financial a number of significant challenges
to reach and your reasons for heading out
performance of the company. along the way, such as:
on the journey in the first place.
• Broaden the governance structure: • Time and resource requirements:
Depending on your company’s objectives
while there are a number of ways to being a public company takes a lot
and maturity, there might be a number
strengthen a company’s governance, of hard work, not only to ensure a
of why an IPO could be the right step for
IPOs provide a strong catalyst and successful IPO, but also to maintain
your company. For example, IPOs can
proven framework for revitalizing the your listing and uphold your stock price.
enable private companies to:
governance structure. In particular, most executives find they
• Access new funding: companies are challenged to devote the necessary
And while these are some of the most
seeking to grow organically or time to successfully manage both the
common reasons to set out on an IPO
through M&A may consider going IPO process and simultaneously serve
journey, there may be a number of
public to access new sources of long- their core business.
other side benefits that can be attained
term capital that can be reinvested
through the process. For example, • Transparency and reporting: public
into the business.
companies operating in politically unstable companies are obliged to report
• Deliver value to existing investors: jurisdictions – or ones with opaque their financial statements and future
by listing your company’s equity on the regulatory protection – may find that listing strategy to investors and analysts,
public market, existing stakeholders on a foreign exchange provides a level of which is not only time consuming,
are able to ‘monetize’ their investment protection for their existing investors. In but may provide competitors with
and create a viable exit strategy. other cases, an IPO may constitute a step valuable insight into proprietary
towards securing lucrative contracts that business plans and strategies.
• Build market awareness: many
are reserved for public companies.
companies pursue an IPO in order to • Regulation and compliance:
publicly traded companies face an
With the proper planning and exponential increase in the level of
regulatory scrutiny and compliance
guidance, most of these issues that must be met, and – if found
non compliant – they may face stiff
can be mitigated penalties or suffer from depressed
share prices as a result.
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
So you want to take the IPO road? | 3
There may
be a number
of viable
alternatives
to an
IPO
• Cost: private companies will can be explored to achieve similar
invariably need to invest in their objectives. These include: Definition: Private Equity
company in order to create the right Firm (PE)
• Accessing bond markets: bond
environment within which to go Private Equity firms are
markets provide an avenue for private
public. In many cases, significant investment managers who
companies to sell their debt on public
investments may be required to invest in companies through a
markets, but without many of the rigors
create and formalize processes variety of investment strategies.
or regulation that come with an IPO.
to ensure compliance with IFRS Private Equity firms often provide
and other financial reporting • Bank borrowing: companies may also extensive business experience
requirements. gain new financing through traditional and best practices to their
loan and debt vehicles raised through network of companies.
commercial banks. But given the tight
Definition: IFRS credit market that followed the recent
Often, joint ventures are founded
The International Financial economic recession, bank financing
between equals who then work
Reporting Standards (IFRS) are a may not always be available and can
together to pool their resources and
set of accounting standards that be comparatively expensive for many
achieve a shared goal.
apply to publicly traded companies companies.
in most major markets (with the
• Private Equity: securing an
notable exception of the United • Mergers and acquisitions: an
investment from a Private Equity firm
States). alternative method for monetizing
is a common method for raising funds
existing investors is to either sell the
while simultaneously maintaining
company or merge with a competitor,
the confidentiality of the business.
effectively ‘buying out’ the existing
With the proper planning and However, this route does not always
shareholders. However, this often
guidance, each of these issues can be provide a clear exit strategy for existing
results in a loss of control.
mitigated. But for many executives – investors and may reduce the overall
particularly entrepreneurs – the visibility of the company in the market.
requirements, rigor and obligations Definition: Leveraged The highly leveraged structure typical
of performing as a public company Buy-Out (LBO) in a PE deal also brings increased risks.
are often underestimated. The reality An LBO (a.k.a. ‘bootstrap’) Clearly, the first step for any executive
is that public companies are very occurs when an investor takes a considering an IPO is to define their
different from private ones, and some controlling stake in a company by destination, motivation and approach
executives may quickly find that using the assets of the acquired which, in turn, will form the basis of their
the effort and risk may not always company as collateral. LBOs are
corporate strategy going forward. And if
outweigh the benefits. extremely risky for investors and
an IPO turns out to be the best solution,
the acquired company.
IF NOT AN IPO, THEN executives who have completed this
important first step will be better placed to
WHAT?
move ahead with a clear understanding of
• Joint ventures: expansion into new their opportunities, goals and challenges.
It is entirely possible that an IPO may
markets can also be accomplished Many companies find that the detailed
not be the right path for your company
through joint ventures with other planning necessary from an IPO also
in the near future. There may be a
companies that can provide access to brings benefits if plans change and an
number of viable alternatives that
funding, technology or key markets. M&A deal is contemplated.
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
DEAL ADVISORY
GETTING IN
SHAPE FOR THE
JOURNEY
It’s going to be an exhausting and exhilarating
trip. And you’ll never be the same again.
The journey to an IPO is not a weekend are in proper shape to take the journey.
pleasure trip. It takes a lot of hard work, This involves conducting a thorough
planning and a substantial investment pre-IPO readiness assessment that
of time and money before you can start compares critical processes and controls
down the road. to the standards required of a listed
company. And much like a visit to the
Indeed, any company considering an IPO
doctor’s office, you may not always like
would be well advised to make sure they
what you find out.
A FINANCIAL public. Financial reporting requires
companies to create and maintain
HEALTH-CHECK
strong processes and controls that
stand up to the rigors of compliance. It
For many private companies, the
is also strongly advised that the finance
process of going public will necessitate
department be staffed by professionals
a fundamental shift in financial reporting
with experience reporting to capital
and planning. For one, IPO candidates
markets.
will need to comply with the local
regulatory requirements for their
respective exchange. In the EU and a
Definition: Sarbanes-Oxley
number of other jurisdictions, this often
Act (SOX)
requires companies to become IFRS
The Act sets a federal standard
compliant, and in the US this means
for all US public company
compliance with both the federal
boards, management and public
Sarbanes-Oxley Act, and local US GAAP Definition: GAAP
accounting firms and covers issues
accounting practices. The Generally Accepted
such as auditor independence,
Accounting Principles (GAAP)
But investors will also want to see a corporate governance, internal
refers to a standard framework
history of strong financial reporting. So control assessment, and enhanced
of guidelines for financial
many companies will need to retroactively financial disclosure.
accounting that includes
re-analyze their past financial results to standards, conventions and
bring them into compliance with the rules that accountants must
relevant accounting framework. Needless The market will also expect to see follow in the preparation of
to say, this can be a lengthy and resource a strong and detailed financial plan financial statements. However,
intensive initiative and may be difficult for the company, as well as robust the term ‘GAAP’ refers only to
to manage in parallel to the ongoing forecasting and budgeting capabilities. locally accepted rules, and so the
responsibilities of the finance department. Forecasting, in particular, will be critical category could include IFRS or
to the management team in the future other local GAAP rules.
The finance department itself will also
as they work to deliver reliable earnings
require a fundamental transformation
guidance as a public company.
as the company prepares to go
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
So you want to take the IPO road? | 5
AN IPO FITNESS TEST: KEY DIAGNOSTIC QUESTIONS
Will we attract investors?
• Can we prepare an attractive equity story with supporting evidence?
• Do we have clear and credible growth opportunities?
• Do we have well-defined Key Performance Indicators?
Will we meet the requirements?
• Is there an appropriate tax structure?
• Are we ready for the due diligence challenge?
• Do we have a robust, stand-alone financial track record produced under IFRS or equivalent standards?
Can we produce high-quality financial information on a timely basis?
• Are we able to comply with the rules for ongoing disclosure and transparency?
• Can we produce accurate and comprehensive information for the board?
• Are we ready for the additional scrutiny from a new set of stakeholders?
How do we measure up on corporate governance?
• Do we have robust systems and internal controls?
• Are our risk management processes sufficient?
• Have we thought about corporate social responsibility?
• Is there an alignment of staff remuneration to performance?
• Is there clear and timely communication with key stakeholders?
• Can we establish an appropriate board structure?
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
DEAL ADVISORY
KEEPING THE EXECUTIVE TEAM FIT
For the management team, the process Analysts and shareholders will also
of going – and remaining – public will expect executives to have some prior
create new and often overwhelming experience operating in capital markets.
demands on their time. On its own,
At the same time, the act of going
the IPO process is massively time
public requires a behavioral change on
consuming and key executives often
the part of executives. Openness and
find they neglect the day-to-day needs
transparency are key aspects of dealing
of the business as a result.
with shareholders, and many of the more
In fact, in a recent survey conducted entrepreneurial executives may have to
for KPMG LLP (UK), 81 percent of re-adjust to the idea of having their plans
financial directors and 62 percent of scrutinized by the investing public.
chief executives who had recently
gone through an IPO admitted that
81 percent of financial
they had spent more than half of their
time focused on the IPO process (at
directors and
a time when, arguably, they needed
to be more involved in the business
62 percent of chief
than ever).
And following the IPO, key executives
executives admitted
will continue to find themselves
facing new pressures and challenges.
that they had spent
Analyst road-shows, investor briefings,
Annual General Meetings (AMGs) and
more than half of
shareholder information requests don’t
only take up a significant amount of
time for these executives; they also their time focused
force them into the limelight. Indeed,
many executives of privately-held on the IPO
companies may not be fully prepared
for the level of scrutiny that comes with process
going public.
THE EXECUTIVE FITNESS TEST: KEY DIAGNOSTIC QUESTIONS
Do you have the necessary time?
• Can you properly fulfill the pre-IPO requirements and simultaneously maintain business operations?
• Will you be able to spend up to 20% of your time on investor relations after the IPO?
• How will you prioritize IPO and day-to-day operations?
Are you up to the scrutiny?
• Are you comfortable with your compensation and other sensitive information being disclosed?
• Can you respond appropriately to shareholder and investor demands?
• Are you prepared to be transparent and clear in everything you divulge to the market?
© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.