How to decide if an IPO is right for you
Let's look at a few companies trying to raise capital
It’s a perplexing time for middle market Colorado executives who are deciding how best to raise capital for their companies. For starters, let’s look at a few recent examples of companies trying to navigate the present market.
During the slowest year for U.S. initial public offerings (IPOs) since 2009, few Colorado companies have completed the process to become a publicly held company. Denver-based Extraction Oil & Gas filed its intent to go public in June 2016, but had not yet pulled the trigger by the beginning of September. Two other Colorado companies, Boulder’s Log Rhythm and Denver’s Centennial Resource Development, filed for IPOs, but then accepted funding from private equity (PE) firms rather than go public. Meanwhile, PE firms active in Colorado are exploring to see if IPO’s are an available exit for their portfolio companies.
Why Companies Should Consider an IPO
Even during a volatile market, a successful IPO can help companies deliver against the pressure they are under to return cash to investors. Some companies that have completed an IPO in 2016 have been able to achieve their desired pricing, which gives executives hope that they, too can reach their desired pricing level. The current market continues to present challenges; however, there are steps companies can take to find the right path and time frame to access capital by considering an IPO.
Steps to Take During the IPO Process
Here are a few of the steps we at Riveron Consulting share with executives to help them during the planning, execution and realization process.
1. Assess if the Company is Ready for an IPO
A compelling business case: Your company needs clear strategy and convincing capabilities to show you have growth potential, limited concentration risks and a highly visible, sustainable product or service. Basically, do you have a good story to tell that explains why your company is here today and ready to deliver results for the future?
Predictability and visibility: How accurate is your financial forecasting? To be successful you will need to know within a small margin of error what the next quarter and next year will look like. And once the company is public, small errors in forecasting may result in missing analyst expectations.
Corporate governance and control environment: The leadership team needs to have a strong tone at the top and a functioning internal audit process. Is your team ready to meet the corporate governance requirements for stock exchanges? Do you have an internal audit function? These are just two of the items that need to consider when moving forward with an IPO.
2. Do the Prep Work & Execute
Once you’ve determined that your company is ready, complete the steps necessary to truly prepare for the IPO, including planning and gap identification.
Planning and gap identification includes assessing your internal control environment and corporate governance to see if it will stand up to becoming a public company. This process also includes determining board composition, establishing a project management office and reviewing financial reporting processes including quarterly reporting.
After the identification steps, execution and gap remediation are critical for ensuring that the company’s financial reporting is reliable. This tests the effectiveness of the internal control environment and begins with remediation of any gaps. Next, the required financial statements must be prepared as well as regulatory filings. Preparing documentation on key processes and controls is part of the work that makes this step critical.
3. Review & Revise
The third step is realization, achieved by managing and implementing SEC reporting, financial reporting process improvements, technical accountingand communication of investor relations.
For most companies, these steps require bringing in additional, external teams to manage the process and help review and revise internal policies and procedures to meet the requirements for an IPO. It can seem daunting, but following through with the right team can make it very worthwhile when a company achieves its desired pricing, even in the current market.
Nate Heeren is the interim market leader for Riveron’s Denver office. He is part of the internal growth team and leads strategic efforts to build and expand offices in new markets. Prior to his current role, Nate spent several years in accounting and financial leadership roles providing due diligence, interim financial management, integration, carve-out assistance, PMO and FP&A. Connect with Nate through email (firstname.lastname@example.org) or LinkedIn.
Scott Gorrell is the client serving director for Riveron’s Denver office, overseeing the financial advisory practice. He provides technical accounting advisory services to clients including IPO readiness, acquisitions and purchase accounting, financial reporting, audit preparation, carve-outs and general accounting and advisory services. Connect with Scott through email (email@example.com) or LinkedIn and find out more about Riveron Consulting’s services by visiting http://riveronconsulting.com/.