IPO in 2023? Start your planning now
IPO in 2023? Start your planning now
Late 2023 and 2024 could see a resurgence of IPO activity following the lows of 2022. The outlook is favourable for an increase in IPO activity towards the end of 2023 and beyond. However, the successful IPOs of next year and 2024 are already being planned and prepared today by forward looking management teams. If you are considering an IPO in the next 12 to 24 months, this article will help you plan and prepare for success.
2021 was a bumper year for traditional IPOs and SPAC IPOs as the world emerged from the global pandemic. However, the 2021 IPO ‘rush’ highlighted the importance of preparation if private companies are going to hit the ground running as publicly traded companies.
The tell-tale signs of inadequate preparation were apparent in many IPOs completed in 2021; missed financial reporting deadlines, restated financial statements, material weaknesses in internal control over financial reporting and missed earnings forecasts. These all have the potential to undermine confidence in the newly listed company’s ability to execute on promised growth strategies. All too often, the result is investor loss of confidence and disappointing stock price performance in the secondary market.
Bounceback expected from 2022 lows in 2023
Why you need to prepare your IPO now
Is your business ready for an IPO? Does your management team understand how to develop, and even transform, the business so it becomes IPO ready? Can you deliver the kind of change management that is required?
The infrastructure that your business needs to support its growth strategy, and to make the most of opportunities presented by going public, is critical. You will need to build the right teams, processes and technology. You will benefit enormously from bringing onboard senior leaders with experience of running a public company. Recruiting the right talent can take time. New processes, and the technology to support them, take time to implement and embed into company culture.
These changes are easier to make before your company is subjected to the reporting requirements and scrutiny of being a public company. You will find that simply meeting the requirements of regulators and the expectations of stakeholders is more than a challenge as it is.
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Typical areas of FPPP memo
Post listing or transferring from AIM to Main Market the directors have responsibility for ensuring controls are monitored and adapted, if necessary, on an ongoing basis in line with any changes within the business.
The FPPP Memo is a live document, and the directors should plan regular assessments of the document, for instance a full annual review prior to the annual audit, with brief quarterly reviews.
Use our IPO-readiness assessment to get personalised report on how close your business is to being IPO-ready.
Tech 14/14 CFF Guidance on financial position and prospects procedures
When is the right time for an IPO?
The ideal IPO window is different for every company and industry. However, if you fail to prepare because you are waiting for the right conditions, you will miss the best opportunities. Our advice is to prepare before conditions are right so that you are able to be agile and responsive when conditions change. The right time to prepare for an IPO is always "as soon as possible".
By preparing during market uncertainty, your company can spread the substantial costs of preparing an IPO out over an extended period rather than in a shorter time period as the economy begins to recover.
It is also worth noting that as the market improves, competition will also increase. When more companies are looking to go public finding consultants, auditors and additional in-house staff to support the IPO readiness process may prove challenging. As a result, these services may come at a premium - and an even higher premium if you’re working on an accelerated timeline.
The cost of delaying an IPO
If you have not completed your IPO readiness process, you could miss the opportunity to attain the best possible valuation. However, if you are forced to rush an IPO, the inevitable mistakes along the way can damage market confidence.
The cost of making mistakes; restatements and internal controls
Any restatements of historical financial statements can significantly impact your company’s share price as well as investor confidence. Typically, restatements will also mean you incur substantial additional audit, legal and other advisory costs. Restatements can also affect previous assertions made by your management team around debt covenants and could even potentially trigger events of default.
If you have to address material weaknesses in your internal controls over financial reporting are usually, this is much more time-consuming and costly when done as a public company. Performing a risk assessment on internal control over financial reporting during the readiness process can reveal material weaknesses, significant deficiencies and other control deficiencies. You are then in a position to develop a remediation plan to improve the effectiveness your internal controls and so prevent, or detect, and correct misstatements on a timely basis.
Understanding IPO filing requirements
Filing forms with the FCA is more than a formality. Your company’s leadership should perform a preliminary evaluation of information needed for filing early in the IPO readiness process. You will then identify and address potential roadblocks to going public. For instance, you will need at least two to three years of audited financial statements which may involve engaging new external auditors who meet independence requirements. If you have recently engaged in M&A, you will need to evaluate whether the audited financial statements of the acquired businesses are also required.
Why your IPO journey should start now
Your IPO readiness efforts should create value and position your company for other deals, such as acquisition by an existing public company or private equity secondary market opportunities.
You should use the current market downturn to pursue a dual-track approach which includes other liquidity events such as private M&A opportunities as well as an IPO. The alternatives to an IPO can become much more attractive and be especially useful if the prospects for a successful IPO are affected by changing circumstances.
By starting your journey to an IPO now, in the midst of an economic downturn, you are positioning your business for success. You will create value through better financial and management information and process and readying the business for becoming a public company. You will also be IPO-ready and able to seize the right moment to complete your IPO.
If you would like to talk to an expert on how to prepare for an IPO and the best time to launch your IPO, please get in touch with Tim Foster, Ross LeCarpentier or Ric Pires.