Roadmap to an IPO


5 minute read

Taking the IPO road?

With no signposts or direct pathways, which way should you go?

It is well known that the IPO roadmap takes meticulous planning, unswerving strategies and hard graft.  But for those who get it right, the IPO journey can be extremely beneficial and highly rewarding.

“Approaching exit shareholders and management must agree on a route that is best for them and the business – this requires consideration of more than simply headline price. The public market could offer the best price and should a strong consideration, but public ownership isn’t for everyone.”

Jim Graham, Non-Executive Chairman of Fora Space

IPO

Meticulous planning

An IPO is arguably the most difficult type of private equity deal to complete successfully, as Sam Porteous, Non Executive Director of NED of Precise.tv and Resi.co.uk, and PEPTalks founder member, points out:

“Be prepared, the level of rigour around an IPO exit process is massively more intense than any other exit process. It takes up a huge amount of time because you need to do the rounds in order to get the equity you need. On top of that, all the due diligence must be signed off by lawyers. It is a massive burden on the business.”

Jim Graham, Non-Executive Chairman at Fora Space agrees…

“It’s an extraordinary exercise in paper work because everything you say or write down has to be checked by a lawyer.”

Are you ready?

This level of transparency and outward facing approach might not be something you are used to if you are about to go through your first IPO. Jim Graham shares what he did to make sure he was prepared:

“On day one, start thinking about your data. Life is a misery if you don’t have a piece of paper to support everything you’ve ever done and everything you plan on doing with the company. You need something to demonstrate the veracity of your past and future with the business.”

This can be vital when you’re looking for investors because they won’t hesitate to disregard you if you can’t support what you say with facts and figures. Without these you seem like a much bigger risk to an investor. Like Jim says…

“Demonstrate the cleanliness of your business.”

This level of detail could be required all the way back to the time of your last PE deal so it’s never too early to start planning your next exit, IPO or otherwise.

Unswerving strategies and hard graft

Get the right support

Our PEPTalks founder members have established how difficult and all-consuming the IPO process can be, and that a support network will make or break you. We asked three PEPTalks members about the key relationship they had in the IPO process and how they managed it.

Chairmen

As Sam Porteous will tell you, your chairman is vital:

“Have a great chairman. We had one who had experienced an IPO process, so he really helped. When we floated, it was a challenge to get the business away because of the market dynamics. The chair had to negotiate with all the shareholders to see who got what, whilst simultaneously help handle relationships with potential banks and investors.”

Clearly having a chair who knows the process and can manage relationships helps alleviate some of the immense pressure that comes with an IPO.

Investment banks

The next, and arguably most important, external friends in the IPO process are your investment banks. PEPTalks founder member and DFS CEO, Ian Filby, explains why:

“For a successful IPO, getting as many people interested in investing in you as a new stock, is key. The banks give you a platform to reach as many investors as possible. You need to have people that access different groups of potential investors.”

Because every investor bank will have a different set of investor groups and contacts it’s always a good idea to have more than one at your disposal through the process. However, there is a limit as Ian Filby learnt from one of his many IPO experiences:

“With my last IPO we had four investment banks but with hindsight I wouldn’t go above three. The more people you are trying to manage the harder it gets.  Four was too heavy and in the end the last one we brought on added very little value to the process.”

Senior management

Another level of support you need on top of its game is clearly your management. After all, a company is nothing without its employees. Jim Graham thinks one of the most important decisions you’ll make in a successful IPO is the distribution of responsibility:

“Once you have appointed your advisors and the real business starts, you need to be really clear about who is selling the business and who is running the business, because they can’t be the same person. It isn’t possible to successfully run a business whilst you are selling it to the public market. If there are fires that need putting out in the business, then you will drop the ball when it comes to selling, and visa versa.”

Making sure your company is still performing whilst you are out looking for investors is vital; as Jim puts it:

“If you miss your numbers whilst you’re in the process of selling, quite frankly, you are toast.”

So, what was Jim’s approach to making sure he had the right amount of staffing power for both the running and selling of the business?

“You have to divide up the senior team to make sure there are strong performers on either side. If you don’t have the resources for this then you will need to backfill the team with middle management that you trust.”

Trust is the key word here. If you chose to go out and sell the business to the public market, then you will have no choice but to leave the day to day running of a company to someone else. That’s why you need to make sure you have hired the right people for the job from top to bottom.

It proves the point that it is never to early to start planning your exit.