The IPO market has been on fire. So, it's not surprising that business owners, executives and founders are wondering if they too should be considering an IPO (initial public offering).
While it's better to go public during a favourable market window like the one we're seeing now, leaders should avoid the temptation to blindly rush in or rush the process itself. The IPO and the ongoing functioning of the entity as a public company will be more successful with an understanding of the goals that the entity wants to achieve with a go-public transaction and of the time, people and cost required initially and on an ongoing basis.
The first — and one of the hardest — decisions that leaders face is whether they should go public. Leaders need to determine what they're hoping to get out of an IPO and whether it aligns with their goals. What will the IPO help the business achieve? Is an IPO the best option?
Defining your business goals
Is the goal to raise capital for growth, gain publicity and credibility, or cash out and exit the business? There may be other options to help achieve these goals. For example, a private placement could provide capital, while a joint venture with, or investment from, a larger, better-known or better-connected company might provide publicity and credibility. Also, an outright sale could be a simpler way for a founder to exit by avoiding the considerable time and cost related to an IPO process, and will avoid any potential limitations or restrictions on selling any remaining interest in the entity post-IPO.
Some companies, unsure of whether an IPO is right for them, opt to move forward with the idea that they may eventually go public but will explore other options, like an outright sale, at the same time. This can be a very good strategy that keeps options open, but it can also result in additional time and costs.
The changing role of leaders
Owners of private companies may be heavily involved in day-to-day operations and have a great deal of control over strategic decisions and direction of the company. Often, they're only accountable to themselves as sole or most significant shareholder or investor. But when a company goes public, the company will become responsible for other people's money — and this means responding to stakeholders and investors. Consequently, owners must be prepared to lose the degree of control they currently have and be willing to accept this change.
Preparing to go public is also a time-intensive undertaking. Owners will need to focus on preparing for the transaction, which will pull them away from an operational focus and trying to grow the business. Founders and CEOs who have been building the company from the ground up will become removed from day-to-day decisions, which can be a difficult change.
Start acting like a public company now
Private companies can begin preparing for the day when they want to do an IPO by starting to act like a public company now. For example, they can put financial reporting mechanisms in place and get accustomed to meeting reporting standards and deadlines.
This may require a change in organizational structure and the hiring of additional management and staff. Private companies might want to consider improving corporate governance now by putting a board structure in place. And they can learn to tell their story and begin developing responses for investor relations.
Leaders also need to realize that they can't do an IPO alone. They will need help from lawyers, accountants, bankers, consultants and other advisors. They will need to choose these people carefully, so they're comfortable working with them throughout the entire process.
Are you ready?
Is the company ready for an IPO and, if not, what does it need to do to get ready? Planning and preparing is critical. To be successful both in executing the IPO and functioning as an ongoing public company, it's important to dedicate the required time, money and people.
In a recent survey, KPMG found that 37 per cent of business owners wish they could retire, exit or sell, however, they may not have the reporting or governance systems in place to do so.
For many companies, an IPO is the most significant event of their corporate life. It can be helpful to take time to decide if an IPO is the right option and to understand all that it might entail.
To learn more about how we can help you on your IPO journey, contact one of our KPMG in Canada IPO Advisory professionals.