Preparing for your IPO
- When is the right time for an SME to go public? Typically, when does a business make the shift to public?
There is no magic number that qualifies a private company into becoming a public one. It’s more about evaluating the options for growth and the viability of an IPO. It depends very much on the rationale for an intended IPO, whether it is to raise capital to finance an acquisition and enter new markets, or to provide an exit strategy for owners and shareholders alike and add kudos and credibility. The decision should be driven from management; however it is important to engage with advisers to help determine the right structure, reporting financials and whether the story would be viable to investors.
- What are some of the major challenges to be prepared for?
An IPO has clear benefits; however, in most cases the process is underestimated in terms of management’s commitment to the IPO process which can take time and effort. An IPO can take anything up to 12-18 months from the initial preparation phase right through to the listing date. A company should start by conducting a readiness assessment and engaging with an Exchange, such as NASDAQ Dubai at the outset to help guide them on the process. Being in the public domain requires greater transparency, from publishing financial accounts to disclosing material information and some firms may find this demanding. It is a mindset change, whilst shareholders are giving up a proportion of their business through the listing of shares; there are also several advantages that can be sought from going public, such as accessing capital, increased company profile and public trust, just to mention a few.
- How important is it to have effective communication ability in place when going public?
This is crucial. A clear communications strategy is imperative when building the equity story around the IPO. It is important to ensure an open dialogue with your stakeholders. You should engage with public relations who are experts in IPO communications strategy, preparing management for investor and media meetings, as well as, providing ongoing support post listing. Investors are looking for well-managed companies with strong balance sheets and good prospects for growth. Benefits of enhanced publicity come with the increased responsibility of communicating appropriately, as well as leveraging the media; basically all means to be visible.
- How important is it to sustain and deliver strong PR in the run-up to an IPO?
The success of an IPO depends on the companies’ ability in communicating its business operations, outlining their competitive edge in a way that is compelling and attractive. This means giving details of the company’s value proposition, activities and plans, through its website, press releases and social media. Press conferences by executives and one-on-one interviews with journalists can also add value.
Building a good relationship with the media should be established well before an IPO. A programme of positive and compelling announcements should then be made in the weeks before the IPO to increase the momentum, including the intention to list announcement and this should continue after listing to ensure interest in the company.
- A shift from private to public can have a huge impact on business culture. How can SMEs ensure that there’s a smooth transition?
Preparation is key. Going public often involves a change of mindset towards greater transparency in dealing with the outside world. That can be adopted well before the IPO, including creating a more balanced board of directors through new hires and having the right advisory team onboard in advance. Companies can also practice preparing their accounts to standards required for public companies before their IPO. A company must have internal controls, systems and procedures in place to support the demands associated with both the process of going public and the requirements to report financial information to investors following the IPO.
- What would you say are regional trends in terms of IPO listings? Do you see significant potential?
NASDAQ Dubai hosted Dubai’s first IPO for more than five years in April, with the successful listing of Emirates REIT which raised $201m and was 3.1 times oversubscribed. Other companies have since announced plans to IPO in Dubai as well, and more are likely to follow from a diverse range of sectors. The prospects look good for a sustained revival of IPO activity in the UAE, supported by strong growth in the economy.
- What are the key factors an SME must consider when going public?
Going public is among the most critical decision a company can make. The advantages of going public can be substantial; however it takes commitment from the management, time and thorough preparation from the outset. It is important to hire strong board members, those who have experience in the IPO or served in a public company previously. Do your homework; speak to advisors and other listed companies who can provide insights into their own experience of an IPO. It is important to have sound corporate governance in place. This means having audited financial statements, in addition to other factors, such as a proper corporate structure and framework. An IPO process is difficult for an SME to manage on its own. It will need a team of advisors that ensures that the company has the policies, processes and documentation in place to meet the requirements of the Exchange and regulator. How long the IPO process takes can vary across businesses, but the bulk of the time is typically spent in the preparation phase.
- What are some of the prime advantages that an SME can enjoy as a result of going public?
SMEs are the backbone of the economy and represent more than 90% of Dubai businesses. They play an essential role and contribute significantly to employment and economic activity in Dubai and the UAE. Raising new capital is key. NASDAQ Dubai offers the key advantage, unlike many other exchanges, of allowing owners to keep control of their business, since no more than 25% of the shares need to be floated. Through listing, a company can access an eclectic mix of institutional and retail investors, with the GCC and worldwide. The recent upgrade of UAE to ‘emerging market’ status will see passive funds’ inflows to UAE by c.US$ 400 million thereby increasing the investor reach. Through our NASDAQ brand, a listing gives companies instant recognition worldwide, in turn raising a company’s profile with customers and business partners.
- What factors would investors consider when investing in an SME during the IPO?
Investors tend to look for well-managed companies with strong balance sheets and good prospects for growth. There are a number of financial factors such as earnings per share (EPS), growth, debt to equity ratio, return on equity (ROE) and profitability. There are non-financials factors, such as quality of management, corporate strategy and corporate governance. Having direct access to senior management is very important, which can be achieved through holding regular meetings with stakeholders. Equity research coverage is also a good way for companies to keep an ongoing dialogue between investors and sell-side analysts. Companies should remain realistic about appropriate performance expectations, be
About the author
Vice President – Equity Capital Markets,
Kam Mattu, VP – Equity Capital Markets, joined NASDAQ Dubai in February 2014 with over 10 years of experience in financial services. Prior to joining the exchange she was Head of Business Development for the AIM and Smaller listed market at Grant Thornton in London and before that she was Business Development Manager at the London Stock Exchange for six years. Kam received an honorary award in the ‘Young Achiever of the Year’ Asian Women of Achievement Awards in 2009 from the Prince of Wales in London and the same year was a finalist for ‘Best International Executive EMEA’ in the Stevie Awards for Women in Business in New York.