Where economic uncertainty reigns, there is a powerhouse of business opportunity creating a glowing, silver-lining. In a country where 99.3% of all private sector businesses were accounted for by small businesses in 2018, growth and expansion is still very much on the business agenda as entrepreneurs explore ways to go further and faster within the external and internal limitations in which they find themselves.
For many, the prospect of trading on a public marketplace is a core part of their expansion strategy.

Pursuing an IPO can be a complex process taking months (if not years) to complete. Working with the right team, which holds the relevant level of experience and skill to help you prepare your business to become ready for investment, is critical to IPO success.

The IPO process is not always straight-forward and that is when having the right growth team alongside you, becomes mission critical.

CFPro’s Mark Johnson has led and been intrinsically involved in the IPO process. With over 25 years of commercial experience in management, including CFO, MD or NED roles in dynamic and growing SMEs, PLCs and social enterprise, Mark shares his insight on the IPO process, and his experience in 3 different IPO scenario Case Studies that businesses may find themselves in today.

Scenario 1: The Self-Driven IPO

Probably the most common process for a business that chooses to pursue an IPO is one that is driven out of their strategic desire to expand – and see their business as one that would be attractive to investors and the public investor market at large. An emerging technology Research & Development company was ready for next stage growth and, after already being listed, required several rounds of investment to continue its growth strategy. In an already advantageous position, the company had a new set of challenges to be mindful of which focussed more on sustaining investor relations than initial investment attraction.

Mark says: “If you’re already trading, you’ll be familiar with the day-to-day requirements on your organisation to keep compliant and to keep your investors informed. Although you may be familiar with the process, this is also the time you need to protect your business and your team and building relationships with investors by keeping them informed on all necessary updates.
You will also need to be conscious of the so-called ‘down round’ if your numbers don’t stack up –businesses inevitably get into a tricky situation where they offer new shares for sale at a price that is lower than had been utilised in the previous financing round.

Scenario 2: The High-Aiming IPO

An office services group with c. £30m of revenue were ready for business expansion, and at the time, believed that a listing on the main market of the Stock Exchange was appropriate. As any business that has the experience of the IPO process would attest to, it’s not an engagement that any organisation should undertake lightly. Best practice says that before making any significant strategic moves, a business should enlist the advice and support of skilled specialists who are able to identify whether that strategic directive is the best for the business, identify what success looks like and ensure that all parties understand the likely huge demands and market expectations prior to the listing, during the process and, especially, after the listing. Although the group aimed for a full LSE listing, failure to have the IPO underwritten and under-subscription of the share placing ahead of the proposed listing, meant that the business had to apply for a listing on AIM instead, and incur all the costs associated twice.

Here’s what Mark says:

If you can’t get an IPO fund-raising underwritten, you need to be prepared to accept not listing at all. The business failed to be underwritten by an investor which resulted in a lack of interest in shares prior to completion of the company going public on the LSE. Understanding that your business is attractive enough and at the right point in the growth cycle to garner the attention of investors, is critical. A lot of that work should be done upfront to ensure a successful outcome and establishing a footing for long-term growth”.  He also advises:

  • Remember that you cannot return back to the market immediately if you do not achieve your first listing directives.
  • It will probably cost your business as much money and effort to ‘not list’ as it would if you were to list.
  • Don’t lose focus on business-of-today by only focussing on tomorrow. Losing sight of the business drastically reduces the chance of seeing tomorrow.

Scenario 3: The Reverse Takeover IPO

A third organisation found themselves at the door to large-scale expansion. They were ready to acquire and the business they’d set their sights on was a major competitor. In order for the acquisition to comply with M&A regulations, a reverse takeover (RTO) was required. Here, the focus wasn’t just on the RTO/IPO itself but more on the acquisition of a new business. Because this business was already a listed business, a new set of processes kicked in – requiring the same amount of work that a business would undertake for an IPO, but in far reduced timeframes.

Here’s what Mark says, “An IPO under a reverse takeover scenario is often not the preferred route for a business but rather one that is thrust upon that business in order to comply with the necessary acquisition process. Timescales are shorter, which are quite often driven by your target and therefore adding more pressure on you to deliver. But on top of the reduced timeframe, you’re now taking on an entirely extra set of work requirements through the acquisition alone. Teams that find themselves in this situation face an immense amount of pressure having to keep their focus on business-of-today, the acquisition of the new entity and all the formalities associated with that, as well as the RTO/IPO that requires a shorter turn-around time than usual. This is very often where things can quickly fall apart. Essentially, what one may start to see happening in this situation is an increase in costs if deadlines are rigid and unrealistic. You don’t have any leverage to select the advisors as part of the process and you have very little room (and time) for negotiation.”

Businesses who find themselves in this situation successfully achieve their desired outcome when they have the right business growth partners working alongside them to help them through the process, augmenting their teams with the skill, experience and know-how, while leaving the existing internal team free to continue keeping focus on the operational aspects of the growing business. Losing focus (whether it’s on current business demands, or long-term plans) is a huge area of risk – and in the case of a reverse takeover, no business can go it alone.

CFPro has helped numerous customers successfully navigate the world of IPO/RTO. Whether you are new to the process, raising next-stage funding, or looking to grow through acquisition. We partner with you help you grow further and faster. If you want to know more about how we can help, get in touch today.

Mark Johnson has 25+ years of commercial experience in management, including CFO, MD or NED roles in dynamic and growing SMEs, PLCs and social enterprise.  He was COO at Celador (the company behind ‘Who Wants To Be A Millionaire’ and ‘Slumdog Millionaire’) ultimately managing the financial, legal and hr team for the business.

Click here to read more about him.