Private company IPOs in the United States
Is timing everything for a successful US public offering?
To maximize the chances of initial public offering (IPO) success, focus on factors you can control. Scaling the company to meet public market demands could pay off more than trying to time the market.
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- Initial public offerings in US markets
- A question of timing
- Increase the chances of IPO success
- The IPO roadmap
- The bottom line: Diligent preparation trumps timing
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Initial public offerings in US markets
An IPO is a major inflection point in the life of a growing, privately held business. While taking a company public in US markets is a complex and challenging process, the benefits often outweigh the downsides for many private company owners and executives.
According to a recent Deloitte poll of nearly 3,000 private company executives across a variety of industries, about one-third of companies view timing the market as the biggest concern when considering an IPO. Building the right team and business infrastructure was a very close second.
Trying to time the IPO market is like trying to time a slump or spike in stock indexes. So what’s a private company to do? Focus on factors you can control that will impact IPO success, like your financial reporting close process or risk management practices.
A question of timing
A poorly timed IPO can be difficult to overcome. If the markets are unfavorable at the anticipated time of issuance, performance can suffer. At the same time, history shows that many—if not most—factors affecting IPO markets are beyond the control of the issuing company.
So what is a private company to do? The simple answer is to focus on those factors that can be controlled:
- Develop a business model with sustainable growth potential
- Assemble a strong team for the IPO journey and beyond
- Build a solid business infrastructure and implement systems that facilitate financial planning and forecasting
- Prepare for a smooth financial reporting close process and develop appropriate risk management practices
- Allow adequate time to ramp up for the IPO
Increase the chances of IPO success
By understanding some of the vagaries of the IPO market and addressing those factors within a private company's grasp, owners and executives can smooth the IPO process and establish credibility for their company in the eyes of investors, both in advance of the IPO event and in subsequent fiscal quarters. The report offers key insights on how to prepare for an IPO, including:
Analyzing market conditions: The lesson from the past 20 years is that trying to time the IPO market can be a risky proposition. Certain indicators—for example, the Volatility Index (VIX)—can help companies gauge the overall market, but there is no one foolproof measure on which to bet the outcome of the IPO event.
Deciding when to ramp up for an IPO: Many companies start between 18 and 36 months before the anticipated IPO date, with an average time being 24 months in advance. Two other important factors that may influence that decision are the current size of the company and the pace of its trajectory toward an envisioned IPO state (i.e., the projected size of the company at the point of the IPO).
Gauging IPO readiness: Publicly traded companies are held to a high standard, particularly when it comes to financial disclosure and other regulatory reporting. Given that some earlier stage, privately held companies use less formal processes, an important part of preparing for an IPO is assessing key systems and processes such as IT systems, internal controls and processes, business and legal matters, and leadership team effectiveness—especially the CFO and finance team.
The IPO roadmap
Once a privately held company is prepared to go public, the formal process typically takes six months. That six months is a highly choreographed and stage-managed process involving many different people, including investment bankers, attorneys, and accountants, whose job it is to help the private company and its management to navigate the IPO. The preparations made in the 24 months leading up to this six-month process are a key determinant of how smoothly the IPO goes.
The bottom line: Diligent preparation trumps timing
With a legislative environment that continues to favor IPOs—and has for more than three years—the 2016 lull in the market may or may not be a temporary phenomenon. The VIX offers one measure for consideration, but many other economic, political, and global factors could emerge to offset even the most positive investor sentiment.
As a result, it is especially important for private company owners and executives who are considering an IPO to understand and address the elements of the issuance process that they have greatest control over: the IPO strategy, the preparations made during a 24-month ramp-up, and the team assembled to navigate the roughly six-month process leading up to the issuance.