For many, the pre-IPO stage is considered to be somewhat of a restructuring phase as the company starts to do the groundwork towards becoming a publicly-traded company.  This is when you begin to re-visit your long-term growth strategy, your company culture, your operational infrastructure, your functional involvement and your overall readiness to start life as a very different organisation. It’s also the point at which you realise that you are ready for long-term growth success.

Perhaps one of the most critical parts of any IPO process, the pre-IPO phase can often take months, if not years, to complete – getting a business ready for investment attention. And if you’re at this point, and you’ve found your way to this blog, then we thought we’d take you through the basics of the pre-IPO process – giving you some insight into what is to be expected, should this be the path your business chooses to follow.

 

Business Review

Before a company even considers an IPO, it needs to internally audit whether it’s in a position to do so, by conducting a full business review. Understanding the issues that an IPO could cause, and whether or not the company is ready, and able to deal with any issues, as they arise.

Any IPO process takes a lot of time, and effort (not to mention financial investment) – and you want to be as sure as you can that your IPO transaction will complete successfully. By undertaking an internal audit, its allows the company to understand and identify issues and then deal with them before the process begins. Planning and assessing in advance will help save both time and money, avoiding any issues that may arise when the IPO starts.

It’s during this business review that you’ll need to assess things like the company’s Corporate Structure, Board structure, Board & Senior Management abilities, any issues that would prevent a successful listing, deal-structuring, tax check-ups & requirements and a review of all internal control measurements.

 

IPO Options

The IPO process can be complex – and there are many types of IPOs available to businesses – depending on the path they choose to follow. Two of the major types of IPOs that many businesses follow, include:

Fixed Price: In the Fixed Price method shares are offered in advance to the investor. The Issue price is disclosed in the final Prospectus, which will go into detail regarding the variables that justify the price. The Final Price may not be in the draft prospectus as factors that determine the price may change during the period from filing to going public.

Book Building: In this method, underwriters try to establish a price which to offer the IPO, based on interest shown by private investors. Book building involves ‘building orders’ from these investors based on the number of shares requested and at what price they are willing to pay. In this case, interested investors need to registrar an interest before ‘closing of the book’. Potential Investors are not made aware of the price in advance, only an indicative price range is known. Once this happens the underwriter will establish an initial selling price for the offering.

There are more types of options available – and our affiliate business has detailed what these are. Read more here:  -> When it’s time for an IPO: It’s time to know your type.

 

Selecting your Dream (IPO) Team

Once the company has taken on an internal audit and outweighed the benefits and risks of the IPO, if the board approves, they can go ahead with the initial stages assembling an IPO management team. This is a critical part of the pre-IPO process as the team is usually made up of a team of underwriters, lawyers, auditors, printers, sponsors/nomads, advisors, brokers, PR representatives and accountants. Selecting the right team could make, or break, your IPO transaction.

The selection of an IPO team can be a long process. It may involve a “Beauty pageant” style selection method. With the company formally inviting the various roles with an invitation to tender. Each role will be approached by various businesses, who will present to the company why they should be given the role, outlining previous experience and why they are a ‘good fit’ for the task.

Once the IPO team has been selected by key management, they can then go ahead with planning the IPO as a collective. Ensuring that the company has high-quality advisors is vital and should be consider one of the key areas of the Pre-IPO process.

For some business, a company reorganisation may be necessary in order for floatation. This process enables a company to identify and change any issues prior to the IPO process beginning, that will potentially cause details or suspend the IPO. Undertaking a Pre-IPO Reorganisation full prepares the business for the complex IPO transaction. Reorganisation may include both accounting and legal procedures.

 

Corporate Governance

Pre-Determining an appropriate governance structure can prepare a company for a successful IPO. Good governance procedures ensure a strong leadership team, whilst minimising risk and building a positive culture around the business to the benefit of shareholders. Strong governance can lead to prevention of harmful situations and subsequently presence in the media limelight for the wrong reasons.

This requires assessment of a number of areas, including things like the Structure and Function of Directors, Roles of Shareholder, Board and Management, Board Size, Board Skills and Capabilities, Clear Business Vision and Strategy, Risk Management and more.


If you’re about to embark on becoming a publicly-traded company, and find yourself in the pre-IPO phase, but need a little more support to ensure a successful listing, then speak to us today.