An Initial Public Offering (IPO) can make or break a company. Material value can be gained – or lost – and the entire process can be costly and time consuming.Despite the high stakes, however, very few businesses have direct experience of a capital markets transaction of this nature. The reality is that the opaqueness of the capital markets make a successful IPO a challenging prospect. However, once you have decided to pursue a deal there are common factors that can help ensure an optimised price, a broad book of long-term investors, and a strong aftermarket. Selecting the right team The first step is finding the most appropriate organisations to help you. Banks, legal counsel, accountants, and PR consultants all have a role to play. The most important decision is which banks to hire. Typically, no single bank can provide the optimum market for your shares and so a syndicate of multiple institutions is used to ensure your company is being offered to the most appropriate investors. Each bank has its own unique strengths and weaknesses and some are more appropriate than others for marketing shares in particular geographies and industries. An understanding of this will ensure your syndicate contains a complementary skill set. Aim for a ‘win-win’ Once you have your team, it has to be recognised that there are various different interests at play and these need to be managed. From the start, your goal should be to achieve a “win-win” for every participant. It is absolutely vital that the banks, your management team, your investors and all of your advisers are on the same page. The importance of transparency To achieve a ‘win-win’ there needs to be complete transparency. An IPO is effectively an opaque auction and so it is important to know who is interested in buying. When looking at investors it is essential to establish: are they a long-term investor? Are they speculators looking for a quick sale? Do the buyers have concerns that can be addressed? Are there any relationships that represent a conflict of interests? Getting the most out of your banks The investment banks working on an IPO gather a lot of information on which investors they can educate, who they feel should be in the book, what feedback those investors have about the deal, the price range and your industry as a whole. While getting and analysing this data is not straightforward, it can bestow a tremendous amount of control to you. First, it can allow you to put your banks in the roles that match their expertise, empowering them to identify and educate the broadest possible market. Second, it helps create a stable and healthy aftermarket. While it is natural that not everyone that is educated will buy shares at the point of IPO, these investors are more likely to subsequently buy at a later date. Third, assessing all this data on a daily basis allows you to react to investor feedback, and identify any potential issues before they become problems. Don’t bow to pressure You’ll be under a lot of pressure to launch your IPO, as there are various different stakeholders that can benefit from you ‘pushing the button’. Not least the banks who are only paid on completion of a deal. The advantages of having transparency and control over the process means that you can take the decision to launch from an informed point of view: is the price and timing right? Is the broader market right now? Having an independent and highly experienced capital markets advisor can be extremely helpful in these situations, ensuring an optimal outcome for your IPO plans. Bruce Hilland is a partner at capital markets advisory firm STJ Advisors.
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