With visible signs of momentum in the IPO markets in recent months, companies are increasingly viewing the remainder of 2023 as the time to prepare for entry into the public markets in 2024 and beyond.
Factoring in the healthy backlog of filers (see representative firms below), the IPO window appears on the horizon, prompting companies to seriously consider their next steps on their prospective IPO journeys.
- Stripe, a payments processing company valued at over $50 billion.
- Databricks, a cloud-based data infrastructure company valued at over $30 billion.
- Reddit, a social media platform that valued at over $5 billion.
- Instacart, a grocery delivery company that valued at over $10 billion.
- Discord, a chat platform for gamers that valued at over $15 billion.
To capitalize on market opportunities ahead, preparation must begin now.
Public-Company Readiness Assessment: The Essential IPO Roadmap
To plot out the timeline, cost, stakeholders, and milestones on the IPO journey, it’s imperative to understand the organization’s pre-IPO posture. This is accomplished through a comprehensive public-company readiness assessment: a tailored roadmap that bridges a company’s current state of operations to an operating model that will enable the company to perform effectively as a public company.
The assessment can also facilitate critical internal discussions with the board of directors, audit committee, and executive team, with the goal of aligning the company’s priorities ahead of the public-company listing.
Because an IPO is a complete transformation of the people, processes, and culture of the organization, the functions of the business must individually and collectively become fit for IPO. Here’s what IPO readiness looks like for various functions:
| Function | Capabilities |
|---|---|
| Accounting close | – Able to close and report the monthly results in a timely
basis. – Heavily automated month-end close process. – Close-time reduction system being leveraged to provide visibility into the financial statement close process. |
| Finance | – Finance serves as a strategic partner to the
organization. – Robust, centralized budgeting and planning process. – FP&A software tool to automate the planning and budgeting process. |
| Accounting policies | – Documented accounting policies for all “SEC hot
topics.” – Adoption of all new accounting pronouncements in accordance with public company reporting deadlines. – Technical accounting matters recorded on a monthly basis. |
| Technology stack | – Fully integrated ERP system
capable of scaling with the growth of the business. – Robust ITGCs to ensure the validity and accuracy of the outputs of the systems. |
| Cybersecurity | – Established cybersecurity and privacy
program that addresses the risk profile of the
business. – Regular monitoring and reporting of cybersecurity threats. |
| Internal controls | – Strong internal control environment over the financial reporting
process. – Documented internal controls demonstrating the operating effectiveness of the internal controls. |
| Investor relations | – Established investor relations function prior to commencing the
roadshow capable of interacting with a diverse set of
investors. – Mock “earnings calls” held each quarter. |
| External audits | – Utilize a Big 4 or national accounting firm capable of producing
a PCAOB-compliant financial statement audit. – Audit performed within SEC reporting deadlines (75 days). |
Create or Enhance Major Functions and Activities Before IPO
A public-company readiness assessment affords pre-IPO organizations numerous benefits, including:
- Identifying potential exposures and mitigating risks before going public.
- Developing a plan to address any identified exposures.
- Ensuring compliance with all applicable laws and regulations.
- Evaluating quality and required effort of financial statements.
- Improving internal controls over financial reporting.
- Communicating effectively with investors.
- Increasing chances of a successful IPO.
- Attracting a wider range of investors.
- Obtaining a higher valuation for shares.
- Improving corporate governance practices.
To achieve these outcomes, companies must either establish new functions entirely or enhance key activities they already perform. Without an objective view of what needs to change internally to operate effectively as a public company, the IPO journey may start and stop, fail altogether, or lead to subpar results.
Those critical areas of the business include:
- Accounting and financial reporting.
- Finance effectiveness.
- Internal controls.
- Technology.
- Financial Planning & Analysis (FP&A).
- Governance and leadership.
- Investor relations.
- Environmental, social, and governance (ESG).
- Legal and compliance.
- Executive compensation and HR.
- Treasury.
- Internal audit.
- Project management.
Maximum IPO Value, Minimal Risk
Optimizing for public-company readiness can accelerate growth potential while simultaneously limiting risk exposure before, during, and after the IPO process. Working with an established partner is the most effective way to navigate IPOs, as they can ensure the right activities are sequenced correctly and that a systematic, comprehensive framework is applied strategically to each organization’s specific goals and requirements.
Additionally, an official IPO team of third parties will need to be involved, from underwriters and financial printers to accounting advisors and tax consultants – bringing these groups together in a timely and collaborative way can make or break prospective IPO planning and success.
For expert IPO readiness support and to make tangible progress on your IPO journey, contact Biovell .