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GOING IPO

Going public can be complex, expensive, and time-consuming, with new challenges, expectations, and stakeholders: analysts, investors, activists, regulators, and media. How they view the initial public offer (IPO) and the company over time can weigh on the company’s performance and perhaps the CFO’s own tenure.
Managing the new pressures requires strong investor relations (IR), but the starting point is not the quarterly close or the earnings call. Rather, it’s having a compelling investment thesis, defining the desired investor base that aligns with your thesis and risk profile, assembling relevant and timely information and insights to guide investors toward management’s view of the stock’s value, telling a compelling and credible story to the public, and managing investor perceptions in the aftermarket.

Make your company an attractive investment opportunity

Given investors’ many alternatives to invest their capital, it’s vital to have a clear and sound investment product. What is the investment opportunity and potential future value your company offers? How will your company create long-term value for the investors you seek and differentiate it from what competitors offer? The value is an interpretation that investors make of the facts they have at their disposal about future expectations, not historical performance. It’s the job of management and IR to shape investors’ expectations of the company’s future performance and gain their confidence. How well that’s done can significantly impact the stock’s valuation during the IPO and over time.
As a company’s business strategy evolves, its investment opportunities may change, but it should remain the cornerstone of how our CFOs and other executives communicate with the public. Periodically, consider re-evaluating what makes the company an attractive investment with facts to support your views. Remember the complexity is the enemy of valuation. Investors seek certainty, and they may invest elsewhere if your investment product and communications are complicated.

Types of investors

The growth in asset classes has elevated the importance for our CFOs and your IR to understand the type of investors that align with the company’s investment opportunities and engage with them routinely. When planning for an IPO, think about which type of investors best align with your company’s investment opportunities, risk profile, and capital needs, and consider whether your investment product supports these objectives. Does your company seek investors with a long-term orientation who desire consistent, steady returns? Or are investors who are willing to forgo short-term returns for long-term growth a better fit?

A mismatch of expectations can create volatility in the stock. It is important that this is carefully considered in the lead-up to the IPO and roadshow and actively managed in the aftermarket. It is important to remember other investor types that can impact the stock, such as high-frequency traders, ETFs, and mechanical traders that use algorithms.

Information required to value your stock

The market’s need for information is insatiable. Our CFOs are determine what information is needed and when, who will produce it, and how to glean insights to guide the market to their view of the stock. How might investors and analysts value the company, and what models might they use? CFOs and IR also need intelligence and tools to track the company’s performance relative to its peers and identify developments that could boost or threaten the stock’s performance. Considerable planning should go into the process and systems for producing information needed to convey the company’s strategy, progress, and story. The more systematized the process, the more time for analyzing data for insights, trends, and KPIs.

Message to investors and public

After the IPO, our CFO and other leaders must sustain the company’s story in the marketplace, routinely providing information and leveraging analysts and media to help create demand for the stock. It’s critical for the C-suite and management to align on the company’s message to the market on why their stock is an attractive investment.
They should ask: How do their decisions, culture, and behavior support the company’s value proposition to investors? The answers can inform the IR plan to make clear the company’s strategy and how it will be executed to build shareholder value. Another key question surrounds earnings guidance. Many companies shifted from quarterly to annual guidance to take a longer-term focus; others don’t provide any guidance whatsoever.

Manage post IPO

The pressure to manage investor perceptions may increase in the aftermarket. Our CFO and IR must continually monitor investors’ sentiment toward the company, its stock, investment product, leadership, and other factors—especially in the event of a crisis. With the transparency of information and social media today, investors can easily punish the stock of a company that takes too long to address a negative event.
Some companies fail to think through these and other issues and how they’re interconnected before going public. Once leaving the private arena for the public spotlight, it can be difficult to take time to reflect on the big picture: continually connecting the investment thesis to strategy, operations, and performance and gathering data and insights to help demonstrate to investors that their stock is a solid investment.

Mandatory regulatory requirement reporting

If your company is headed towards an IPO, it will soon be responsible for more reporting requirements and regulations. Our CFO may find that the current team is not qualified or not large enough to handle the needs of the company during and after the IPO. Many companies double the size of his team to meet the requirements. Our team are highly skilled in IPO and can prepare all regulatory reporting.