In our earlier article “Preparing for a Successful IPO”, we mentioned that a Pre-IPO Diagnostic is a position assessment done on the company, focusing on its readiness to embark into the IPO exercise. This is also the most cost-effective way for a company to understand itself, allowing the management to weigh the cost and benefits of proceeding with the IPO exercise. The expected timeline for this work is 2 to 3 weeks for most businesses, mainly based on methodologies encompassing interviews recordings and checklists. In totality, the Pre-IPO Diagnostic covers these 3 sections:-
- Company’s current state/position
- Gap analysis against minimum standards required (marked to market)
- How much can the company stretch to achieve its r06equired target expectation
- Our recommendation on the way forward to achieve successful IPO exercise
The Pre-IPO Diagnostic usually assess the following:-
- Group structure: To review transparency, related party connections, tax efficiency and whether there is a need to restructure to a more efficient group.
- Corporate governance: To review the efficiency and independence of the board of directors, existence and effectiveness of the audit committee.
- Historical financial results: To review the track records, trends, management information and significant transactions based on the audited financial statements. It is normal to review the performances for the past 3 years audited financial statements prior to the year of the IPO exercise.
- Budgeting and Forecasting: To review the existence of such systems, variance analysis and reconciliation process, and the extent of such systems being carried out diligently by the employees.
- Financial reporting procedures: To review timeliness of reporting, preparation of financials and management accounts in accordance with the accounting standards and proper disclosures are made.
- Operational and financial controls: To review the existence of an effective internal audit team, approval processes, and adequacy of IT systems.
- Industry trend: To review whether the industry that the company is in, is on a growth trend or in a sunset direction. This plays a huge part in the investors’ appetite.
- Competition: To review the company’s sustainability and growth potential against some of its direct competitors.
- Valuation: To do a desktop peer review, especially if there are competitors that are already listed in the stock exchange, to gauge the value multiplier (“P/E ratio”) that this company would reasonably achieve if it proceed with the IPO exercise.