Over the past few months, the UAE’s capital markets have seen an unprecedented increase in activity with a flurry of initial public offerings (IPOs) anticipated in 2022. The MENA region saw four IPOs, raising total proceeds of USD 1.8 billion during the third quarter of 2021i. Dubai revealed plans to list ten government and state-owned companies on the Dubai Financial Market as part of a broader strategy to double the financial market's size to AED 3 trillion.
The successful execution of these IPOs relies heavily on a robust financial story narrated by the CFO. Finance and storytelling may appear to be unrelated. Finance is synonymous with numbers, statistics, facts and data. Storytelling, on the other hand, is considered a creative skill rooted in language. However, it is the marriage of the two that enables CFO to connect with investors. Having non-financial business drivers connected to financial outcomes is essential to good storytelling and ultimately a successful IPO.
In a recent study, Gartner predicted that data storytelling will dominate Business Intelligence by 2025 ii. With disparate systems and an overwhelming amount of data, the narrative becomes a challenge. To enable storytelling, CFOs need to align business planning, budgeting, forecasting, and financial reporting by leveraging a holistic Enterprise Performance Management (EPM) strategy.
When enabled by technology, EPM can provide a 360° business view that translates strategy into action for improved performance. It enables business leaders to holistically align their strategies with plans and actions that significantly impact the entire organization’s performance – resulting in competitive advantage.
|Key IPO requirements||How EPM helps to meet these requirements|
|Developing a compelling company story before going public||EPM solutions provide visualization functionality to help you tell stories based on your data. Data tells you what’s happening, stories tell you why, and it’s the powerful combination of the two that determines the success of an IPO.|
|Drafting the prospectus and marketing the offering||A well written prospectus will detail the current and potential future market conditions of the products or services, and investors will use this to assess longevity of the business. This requires well-governed, good quality, internal and external data to ensure plans and budgets and forecasts are realistic, and reporting is accurate and meaningful. This is underpinned by EPM capabilities which may use predictive forecasting techniques, driver-based calculations, machine learning, and artificial intelligence.|
|Establish a robust management reporting process||EPM capabilities significantly automate reporting processes to crunch more data, leveraging more sophisticated modelling and analytics functionalities. EPM capabilities are based on the integration of transactional and multidimensional databases to provide more reporting options based on the various aspects of your business—clients, product, region or time period.|
|Forecasting earnings||A track record demonstrating the ability to forecast sales and earnings trends, and evidence of predictability in the business, will help to differentiate companies looking to go public. EPM capabilities enable predictive analytics, giving organizations the opportunity to become more proactive and anticipate outcomes and behavior based on data and not just assumptions or biases. This forecasting accuracy and transparency is fundamental to a successful IPO. A study by Gartner shows that as companies go public, forecasting activity undergoes the highest magnitude of change with over 80% increase in FTEs (full-time equivalent—an employee's scheduled hours divided by the employer's hours for a full-time workweek) and spend almost doubles. This typically happens because public company investors ask for more earnings guidance and expect more accuracy iii.|
|Align key performance indicators/non-GAAP (generally accepted accounting practices) metrics to market expectations||The concept of KPI metrics is a key component in EPM and that helps management concentrate on how their organization is performing against pre-defined, critical goals and objectives. These KPIs are usually communicated to executives and managers through reports, dashboards, or scorecards and are critical to the successful execution of an IPO.|
|Investor communication strategy going forward||Communication requirements to key stakeholders post IPO requires more integrated business planning – aligning business performance with external reporting. Leveraging a strong EPM strategy enables insightful business decision making real-time, which is essential for full transparency demanded by the unforgiving public market. To thrive, post IPO, the company needs a mature EPM practice using a robust KPI framework, scenario based planning and predictive analytics to demonstrate to investors that they are successfully executing the business plan, meeting financial targets consistently and attracting the right investors while ensuring regulatory compliance.|
The aspiration is for EPM to enable finance leaders to build a future-ready organization and be “RAPID” to guarantee a successful IPO or mergers with a special purpose acquisition company:
- Recommend: make future recommendations to channel business growth
- Ask insightful questions as data is subject to confirmation bias – the tendency of the brain to latch onto information that is in alignment with its expectations
- Predict: make sensible predictions based on trends, ‘what if’ scenarios and driver-based planning
- Inform the business and drive business strategy
- Decide: co-pilot the business to make future decisions
Any organization considering going public needs to ensure their EPM framework and strategy are in place, because a good story is key to a successful listing. This requires agile business planning, budgeting, and forecasting with the effective use of predictive and prescriptive analytics.