IPO Preparedness Considerations

Over the last several weeks, we have been hearing increased optimism regarding the IPO market reopening but with concerns that the economy and the market remains unpredictable.  Preparedness will be paramount for companies looking to take advantage of a potentially limited window of opportunity which is expected to be both crowded and competitive given the backlog of prospective candidates.  There are several topics companies should evaluate if they are considering an IPO:

Timeline considerations

1. The formal registration process (which commences with the all-hands organizational meeting after the banking syndicate has been selected) generally spans at least three months. When considering the timing of completing an IPO, the timing of the formal registration process as well as any preceding preparation should be factored in.
2. The smoothest IPO processes generally begin with a productive all-hands organizational meeting. This means all key contributors are actively engaged and ready to participate; this includes high-quality meeting materials, including an overall timeline, investor pitch deck, and drafted sections of the registration statement being available to support the discussion.
3. The financial statement periods required for the initial registration statement filing will likely be different than those required upon effectiveness. When preparing the overall timeline, it is important to determine all financial statement periods which will be required during the registration process and assess the company’s ability to close their books and prepare the required financial statements on time.

Accounting, reporting, and financial operations considerations

1. Public offerings require significant time and focus, above and beyond their normal demands, from the accounting and finance team and historical financial statement closing timelines will likely need to be accelerated during the registration statement process. Companies should assess the capabilities of their existing team, including their collective skill set and bandwidth, to determine if staff augmentation (consultants on a part-time basis, or additional full-time employees) are necessary to meet incremental demands.
2. IPO filers are subject to different auditor independence standards (PCAOB versus AICPA), which may take an auditor a month or more to complete. These independence procedures generally need to be finalized prior to the auditor commencing work on IPO activities.  In addition, the audit standards for public and private companies are different, which may require the auditor to supplement their historical audit procedures. The extent of these procedures will vary, but it is important for companies to engage with their existing auditors as soon as possible to ensure they can continue as the auditor of record as well as incorporate incremental procedures into the timeline.
3. The registration statement may require interim financial statements which could require enhancements to the existing accounting records. Specifically, we commonly find adjustments are necessary to ensure proper cut-off of accrued liabilities, to properly reflect certain noncash activities, to re-assess valuation of stock-based awards, other entries related to significant complex transactions which private companies may record on an annual basis, as well as to unwind any elected alternatives which are allowed for private companies. An evaluation of the readiness of complete and accurate interim financial statements (including those within previously audited years) should be performed early in the process.  The audit firm will also be required to perform a review of any interim periods included in the registration statement.
4. Following an IPO, public companies must be able to close their books and prepare core financial statements within approximately 10 to 15 days in preparation for an interim review by its auditors. In addition, the Form 10-Q (including complete financial statements), press release (including key performance indicators), and board materials must be prepared within approximately 30 days or less. Now is the time to assess the capabilities of the accounting and finance team to meet these demands on an ongoing basis; an operational review of people, processes, and systems should be performed.

Other Considerations

1. Service providers, including bankers, auditors, lawyers, and consulting firms, may be inundated given the pent-up demand. Companies should begin building these relationships now and ensure communication to respective parties if there is a potential for a transaction, especially if there are major timeline considerations.
2. High-quality, independent board members are in high demand and identifying and hiring these candidates will take time. While the SEC provides phase-in rules related to its board composition requirements, companies should initiate their search for independent directors as early as possible.
3. Employees are typically restricted from selling shares, including sell-to-cover exercises of stock options, for a period of 180 days following the IPO. Upon expiration of the lock-up period, it is important the company has an equity management system that integrates with both a broker and the transfer agent. Historically, we have seen a significant demand for such systems during periods of high IPO activity which caused significant delays in the implementation of these systems by several months once the appropriate vendor was selected. Companies should evaluate the capabilities of their existing equity management system, if any, and select replacements if a new system implementation is required.

In general, the time necessary to prepare for an IPO and life as a public company will vary based on the size, nature of operations, composition and experience of the management team, and the status of any existing public company readiness activities.  Prospective candidates should perform a thoughtful evaluation now to evaluate readiness based on planned IPO timing. The team at Monomoy Advisors has significant IPO experience and is happy to answer any of your questions regarding the process.

Please reach out to Kyle Peterson at kpeterson@monomoyadvisors for assistance.