Getting from point A to IPO
As the world recovers post-pandemic, Malaysia’s IPO market is seeing a fresh resurgence with 29 listings in 2021, as compared to just 19 listings in 2020. As the worldwide markets recover, companies are eager to capitalise on uninvested funds and the revival of consumer demand across all industries.
Similar to the healthcare boom we saw leading up to the peak of the pandemic in 2019, different sectors are now fast expanding, particularly those with the digital capability to scale. This is further catalysed by the myriad of digital transformation initiatives by the government.
Why go public?
One of the most cited advantages of an IPO is to pave the way forward for a company to raise funds, to ultimately expand horizontally across relevant sectors into previously untapped markets, and vertically to increase efficiency and profitability through better control of their business ecosystem.
Additionally, this would lead to more effective corporate structures and operations, allowing founders to take a step back from managing the day-to-day and focus on the future.
For example, in the ride-sharing industry, companies that have embarked on the public listing route have expanded from strength to strength, developing separate revenue streams from deliveries to digital wallets, which would not be possible without increased funds.
Gauging your IPO readiness
The period leading up to an IPO can be one fraught with challenges, pressures, and regulatory compliances that many businesses may be unfamiliar with or unprepared for, resulting in delays or even derailments. Every business is unique and has their own set of challenges. The aim here is to provide a road map to navigate through the common pitfalls and obstacles.
Know your numbers
When embarking on the IPO journey, financials are essential. What is required, specifically, is the latest 3 years of audited financial statements, with a time frame of 6 months to list from end of the last financial year. This means once the process is initiated, the clock starts ticking, and any delays could result in unnecessary expenditure.
Additionally, businesses should have a dynamic and robust Enterprise Resource Planning (ERP) system that captures and consolidates all essential transactions. A common pitfall among companies planning to go public is incomplete data due to inefficient systems, requiring them to manually extract and reproduce transactions dating back years. A good ERP system manages and integrates a company’s financials, supply chain, operations, commerce, reporting, manufacturing, and human resource activities.
Know your business
Numbers and compliances will be heavily scrutinised by regulators when going public. This can be an overwhelming and stressful process. Most unprepared companies would likely have to go through an arduous process of restructuring to ensure compliance and optimise their IPO value.
Throughout the life of a company, it is quite common to have multiple entities under the same ownership. A company might extract the most value from an IPO by consolidating its businesses under a single entity or group, or even ‘carve out’ a business segment to better position themselves to present the most attractive growth story and strong financial health in preparation for going public.
Compliance is always a priority, pre and post IPO. There have been recent incidences of compliance breaches, resulting in scrutiny and losses of revenue streams. Even with the subsequent remediations, these issues have adversely disrupted operations and tarnished reputations.
Know your trajectory
Many business owners and founders started off as visionaries with dreams to provide products or services to fulfill market demand. With the availability of funds from an IPO, growing that business is no longer a dream but a tangible pathway. Founders can retain and reward talents who help make it possible and further hire the right people as the business grows.
The IPO method is a tried-and-true path for raising funds, with solid systems and regulations in place, governed by the Securities Commission of Malaysia. While it can be a complex and arduous process, it also allows organisations to better know their company and its environment, as well as the way forward.
Luck favours the prepared. The ongoing pandemic has affected many businesses, with some even forced to wind up. However, there are also many other businesses that have and are flourishing and growing from strength to strength.
Going public is considered one of the most celebrated milestones a company can achieve. The key success to a seamless transition is being able to plan and navigate through the IPO process.
The views and opinions expressed in this article are those of Wong Kar Choon, IPO Leader and Brian Tan, Disruptive Events Advisory Senior Manager of Deloitte Malaysia.