Preparation for certain capital markets transactions can be onerous. This is especially true for an Initial Public Offering (IPO) on the stock market. Preparing well in advance will help to:
- Identify and resolve potential issues early
- Reduce pressure on management at the time of IPO
- Ensure that the company is in a position to undertake an IPO at short notice when market conditions are optimal.
The following represent key areas which, in our experience, benefit from early consideration. BDO can give advice and assistance on any of these areas:
Choice of market
- Consider which market the business is most suited to.
- Get an introduction to other appropriate advisers who can add their advice; BDO’s capital markets team are happy to assist with introductions.
- The choice of market impacts on a number of the requirements below.
Corporate structuring and taxation
- Assess whether the corporate structure and jurisdiction will be acceptable to investors and plan changes as appropriate.
- Consider whether changes are needed to the corporate structure in order to optimize tax for existing owners, anyone proposing to exit on IPO, future investors, and for the business going forward.
Dividend blocks
- Post-IPO there will be a requirement to consider a dividend policy. Dividends cannot be paid out on an aggregate reserves basis, so an early exercise is recommended to ensure that there is a clear path from the trading companies for distributions.
Historical financial information
- Prepare full accounts under IFRS, which should then be audited. These are usually needed for at least the last 3 years. Interims may also be needed for a more recent period if the last audited year end is not recent.
- Prepare full accounts on any significant acquisitions in the last three years and get these audited, depending upon the market selected.
Financial projections
- Prepare financial projections covering a period of at least 18 months from the anticipated date of IPO. These projections will therefore need to be suitably detailed and capable of being easily flexed for sensitivity analysis.
- Financial projections for a longer period are likely to be needed for valuation purposes.
Financial position and prospects procedures
- Ensure that the procedures for establishing and reporting the company’s financial position and prospects are appropriate for a public company. This includes matters such as financial reporting systems, management accounts, budgeting, forecasting, board procedures and board reports, and reporting timetable.
Remuneration schemes
- Consider the implications of existing share schemes and determine further share option or other incentive schemes which might be put in place for directors and employees either pre-IPO or on IPO.
- It will be imperative to the success of the process that your employees are suitably incentivized to work hard. Consider bonus structures that may achieve this.
Management team
- Ensure that the management team is functionally complete and ensure a succession plan is in place in case key directors or members of the management team leave.
- Start looking for non-executive directors, as necessary.
- Ensure that the finance team is suitably resourced to deal with the IPO process and the reporting timetable of a public company. Consider appointing a specific project manager for the IPO.
Administration
- Prepare files of key contracts, financial and tax documentation for the due diligence and verification process.
- Ensure that the group’s zakat and tax affairs are up to date and in order.
BDO can assist with performing an IPO readiness review. This is an assessment of how prepared a company is for a future IPO, with a particular focus on accounting and financial aspects. It provides the board and its advisers with an indication of practical steps that can be taken in the short term to assist a future IPO process