Going public through an IPO is often a key moment in the transformation of a company into a vastly more significant and formidable enterprise, outstripping its unlisted peers.
This major step can involve a change of mindset. It is not merely about compliance with listing rules. A public company is run for the benefit of a wider group of stakeholders than a private one and caters to their needs accordingly.
This change of corporate approach impacts the thinking and behaviour of the Board of Directors and senior management. It is vital to recognise the need for this adjustment and manage the way in which it is implemented well ahead of listing.Areas of the business that typically need to be enhanced prior to a listing include:
Many private businesses are managed by the founder, or relatives and friends, and decisions are sometimes made with little consultation or formal approval process. When going public, listing rules require strong governance structures to be implemented with specific emphasis placed on the responsibilities and decision-making powers of the Board, together with its membership and protocols.
Information that was previously shared only with a small stakeholder base as a private company needs to be made available to a much wider base when a company is public. Understanding what information needs to be disclosed, and when, is a fundamental element of transitioning from being a private to public company.
Financial reporting and controls
Management should assess the company’s ability to comply with ongoing obligations such as publishing annual financial statements or interim financial information within exchange reporting timeframes. In addition, management will need to assess adequacy of internal financial processes and controls as a public company.
Investors will keenly assess the management team and their credentials for taking the business they invest in to the next level. Accordingly, it is important as part of the listing preparation that the Board critically assesses company management and determines if changes or enhancements need to be made and where.
Transparent legal structure
The current group structure should be reviewed to to optimise reporting lines, make use of beneficial tax jurisdictions and streamline legal structures. This generally allows management to better explain the company’s equity story.