IPO readiness: ten key considerations

This will allow appropriate time to not only decide whether an IPO is the right liquidity event for your company, but also leaves sufficient time to work on preparedness in advance of a transaction, rather than attempting to do so ‘in flight’.

Engaging with a range of advisers will help you benefit from market intelligence from very early discussions to begin laying the foundations for a trusted relationship during the IPO.

Although possible, it isn't advisable to conduct an IPO in a very short period. An IPO is an involved and detailed process, and the better prepared companies are in advance of the ‘kick off’ of this process, the easier it becomes. This will also enable you to capitalise on those windows of opportunity when market conditions change.

Your business strategy should present an attractive equity story to potential investors, that identifies the market opportunity, future growth potential and differentiates your company from its competitors using its unique selling point.

A clearly articulated long-term strategy for the board to deliver will help to maintain the share price after the IPO and support any further fundraising once on market.

Re-visiting the current business strategy early in the process will give you sufficient time to refine and rethink this, in conjunction with its advisers, to ensure the equity story will resonate with investors.

Markets have varying listing, trading, and on-going requirements. You should consider the choice of market early to make sure that your company is eligible and appropriate for the desired listing venue.

Marketability and tax considerations should also be taken into account, as this can have a significant impact on existing and future shareholders and is best to assess before embarking on a transaction, to avoid complexities arising further down the line.

At a minimum, your board will need to include independent non-executive directors with a range of financial and industry skill sets, as well as a strong CEO and CFO. Main market-listed companies are also mandated to have a range of gender and ethnic representation on the board.

Considering board composition early in the process will enable you to not only meet requirements, but also utilise the expertise of these individuals to enhance the bench strength of the board in addition to helping to frame the governance structures in advance of going public.

Testing the waters with the likely investor-base through early-look marketing should be done well in advance of starting the IPO process. This will raise the profile of your company in the market, build excitement amongst institutional investors for your proposition, and allows time for you to gather market feedback to ensure the best chance of raising capital upon entry to the market.

Early-look marketing offers an opportunity for your company to demonstrate that it can perform against expectations. If meetings are held well in advance of the IPO date, then your company can prove at the time of IPO that its financial projections have been met, ultimately building investor confidence.

Ensuring at an early stage that management has robust financial metrics with realistic and accurate growth aspirations will make these meetings seamless, and help optimise valuation in line with company expectations.

The UK audit landscape is evolving and reporting accountants will inevitably perform top-up audit work on historic financial information. This can present practical issues which can lead to significant delays in the process without adequate preparation.

Consideration of the quality of financial information and obtaining assistance from advisers to improve this before embarking on an IPO process is key to mitigate the risk of timetable slippage.

The systems of internal financial control within a private company are unlikely to meet the strict regulatory requirements expected of a listed entity.

Considering the adequacy of an internal financial control system, and how this is documented well ahead of embarking on a transaction, means that there's ample time to identify any material risk areas and formulate an implementation plan.

This will enable you to withstand the additional reporting pressures once on market.

You should consider internal resource capacity and capability well in advance of starting an IPO process to ensure that the business can operate on a ‘business as usual' basis when the transaction process begins. 

Resource-planning will identify gaps and allow time for you to appoint key personnel to run the internal IPO process and be responsible for key areas, such as financial reporting.

As part of an IPO readiness process your company can be guided on the valuations of competitors in the market to formulate realistic valuation expectations and avoid optimism bias.

This allows for pragmatic discussions with brokers during the IPO process and can inform whether an IPO is the right avenue for your shareholders in terms of an attainable valuation.

A clear understanding of how the funding will be used by your business to accelerate its growth trajectory is also important to have during these discussions .

As with all liquidity events, an IPO is expensive. Assessing the risk and affordability of a transaction falling over, in advance of the process beginning, helps to mitigate against unexpected costs.

Many of the disciplines around IPO preparedness, such as financial reporting, management information, or board composition will also prepare you for different types of liquidity events, such as a sale process to private equity or a trade buyer.

Alongside IPO preparation, you could consider pursuing a multi-track approach, simultaneously engaging in a trade, private equity and IPO process in order to drive the best outcome for shareholders.