By Jason Rigoli, Principal at The White Oak Group
In the latest issue of Mergers & Acquisitions, there was a good article by Erik Birkerts, a partner at Evergreen Growth Advisors, regarding five observations from the IPO process. In the article, Erik asks an important question: “How should company leadership objectively think about the strategy of going public?”
When thinking about an IPO offering, many business leaders only think about the benefits and how it’s a validation of their business’ success. However, many times, the company lands on shaky ground following an IPO.
According to Erik, the following observations may be helpful to those considering an IPO:
Carefully dissect arguments for why the company should go public – In addition to the many reasons a company should go public, there are many more reasons to be cautious about the IPO process, including:
- The distraction the process will cause with management and employees
- The burden of Sarbanes Oxley compliance
- The sheer overall expense associated with legal, auditing, investor relations and pubic company costs
- The voluminous and time-consuming disclosure requirements
- The incessant scrutiny
- The increased risk of losing control through unwanted takeover or shareholder activism
All of these negatives must be weighed carefully before starting on the path to IPO.
Have a specific plan for using the capital and communicate it early and often! – With new capital comes thoughts of acquisitions to support corporate growth. However, company executives need a clear plan prior to the IPO on how it will use the new cash once the process ends. This plan must be communicated to investors early and often to ensure investors are not surprised after the IPO.
Challenge your thinking with independent, objective outsider advisors – This one is pretty self explanatory. Although a company’s Board of Directors is a valuable resource, it’s also important for CEOs to have outsider advisors to provide an objective point of view. Talk to other business leaders you know who have been through the process for their insights.
Operate from your worst case financial scenario – Erik says the one thing companies can count on during the first year of being a public company is Murphy’s Law. What can go wrong, will go wrong. Therefore, it is important to be conservative with financial forecasts and set the company up for success.
Select your investment bankers wisely – The decision on investment bankers, according to Erik, can make or break the success of your IPO. So, choose wisely.
At our monthly ACG National Capital meeting last week, Bill Angrick, CEO of Liquidity Services, Inc., spoke about the reasons he took LSI public. Here’s what he had to say:
Are you considering taking your company public? What pros and cons are you currently weighing? Drop us a comment and let us know about it.