How to prepare your IPO

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Floating on the stockmarket isn’t just for big businesses. Mark Fahy, head of UK small and mid-cap companies at the London Stock Exchange, offers five tips on how SMEs can make the change from private to public too

1. Start preparing two years early
Fahy says: “The process of an IPO [initial public offering – the first sale of stock by a company to the public] takes three to four months on average. But most firms will spend 12 months or even two years planning first. This preparation would entail making sure your accounts conform to IFRS [International Financial Reporting Standards] requirements. This, along with a number of other elements: Do you have all your service agreements in place, plus contracts with customers, suppliers and employees? Are your tax structures set up correctly? Is your IP [intellectual property] protected? You’ll also need to select an underwriter. For an AIM [Alternative Investment Market] company, you will need to appoint a Nomad [nominated adviser]. For Main Market companies, it would be an investment bank. Alongside considering the underwriter’s experience, the strength of the analyst and sales teams, plus investor access, it’s also vital to focus on relationships. You’ll be working closely with these individuals.”

2. Understand why you want to be a plc
“Ensure the rationale for your IPO is well understood. How are you going to use the market once you’re there? One of the key aspects is access to capital. It’s not just about raising money at the point of flotation – it’s the potential you have to go back time and again to raise further funding that is also important. For many companies, share options are powerful in attracting or incentivising employees. When companies come to market, there are often additional benefits. For example, their raised profile could help them increase bank financing, win new contracts, or access new clients and customers.”

3. Mitigate risks and schmooze investors
“It’s important to get the board/ management team structure in order early so you’re on-market as a PLC. There’s also a three- to four-month period [between the time a company files and the day the IPO happens], so it’s difficult to judge exact market conditions at the time of flotation. We’ve seen challenging conditions in the last few years but 2013 showed that confidence is returning to the market. We’re witnessing companies ‘pre marketing’ as they start the IPO process, three to four months before flotation. They visit potential investors, tell them about the evaluation and how they’re hoping to develop. When it comes to doing the final roadshow, there’s more of a relationship in place.”

4. Craft a compelling ‘investment story’
“To float on AIM, you must provide an admission document [outlining financial security for potential investors]. This will include financial statements, legals, risk factors, the make up of the board and their biographies, future plans for the business, and IP-related issues. The investment story needs to sell the future plans for the business to investors. The admission document may mean you will have to disclose risks or any lawsuits. If that is a genuine concern, you may need to think about whether it’s the right time for an IPO. Firms need to prove to investors that they have gone through the correct procedures and due diligence and are offering a genuine investment opportunity.”

5. Don’t neglect the day-to-day business
“An IPO is an intensive process, which will take up a lot of the CEO and CFO’s time up until a business floats. During this time, the business still needs to run as normal. Having the appropriate management structure in place will ensure that you continue to trade as normal.”

About author

Christian Koch

Christian Koch

Alongside his work for Director, Christian has written features for the Evening Standard, The Guardian, Sunday Times Style, The Independent, Q, Cosmopolitan, Stylist, ShortList and Glamour in an eclectic career which has seen him interview everybody from Mariah Carey to Michael Douglas through to Richard Branson with newspaper assignments including reporting on the Japanese tsunami and living with an Italian cult.

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