While many companies want to be public listed, majority of these companies did not prepare for the IPO exercise. In fact, many of the companies failed the Pre-IPO Diagnostic, which is an assessment done on the company as to their readiness towards an IPO exercise.
From our experience, most companies failed the Pre-IPO Diagnostic because the owners and management of these companies have always been focussing on the following:-
- Tax planning to minimise tax exposure
- Owner operate, no properly defined operating systems
- Personal benefits, especially financial
- Many related party transactions according to owner’s intention
With all these issues in hand, these companies must then rectify and restructure the company/organisation while preparing themselves for the IPO exercise, which wastes precious time.
Preparing the company early for the IPO exercise is a critical success factor to achieve a smooth execution process to become public listed. These preparation includes identifying and rectifying potential issues so that it can enjoy the advantage of most favourable timing for the IPO. The preparation comes in a few sections:-
- Carry out a Pre-IPO Diagnostic to review the critical areas of the company needed for a successful listing exercise. This is to ascertain the readiness of the company to embark on the IPO exercise.
- One of the main investors’ confidence towards the company lies in strength of the management team. Investors love to see an effective management team in the company as opposed to a “one-man show” as most private-owned companies do. Therefore, in preparing for the IPO exercise, the company needs to build a strong and effective management team to drive the company towards the long term goal, and to achieve maximum financial return to the investors.
- The company needs to evaluate and set up corporate governance structures, principles and practices to ensure they meet the exchange requirements. This is a heavy and important area to focus on these days as investors demand a high level of transparency in all the public listed companies.
- Another part of the transparency and integrity requirement is to create an audit committee, which is at the board level review on corporate reporting. This committee must consist of some independent non-executive directors.
- The company needs to appoint some independent non-executive directors to be part of the board members. These persons should be professionals in certain areas of expertise, whom the management team can use for some independent advises, but mostly, the purpose is for check and balance in the company.
- A major part of corporate reporting is via financials. The financials are delivered by way of audited financial statements, budgets and projections. Therefore, this section must not be taken lightly in the areas of accuracy and timeliness. Apart from investors, bulk of the users of these reports are financial analysts.
- Engage a public relations firm to build a positive public image for the company. A good image can increase the company’s valuation, especially when the story is very attractive to the investors/public. Likewise, some corporate social responsibility efforts can boost the image as well.
- To identify and establish a full project team to bring the company to a successful IPO. The team covers project managers, merchant bankers, reporting accountants, legal advisers etc.