Prepare now for an IPO or SPAC merger in the next 24 months

The CEOs and CFOs we’ve talked to have shared common lessons that they believe are critical to the success of transitioning to a public company:

• Consistently developing and meeting internal forecasts
• Establishing and articulating key performance indicators (KPIs) and non-GAAP measures
• Clearly defining and delivering the company’s growth strategy
• Building or having a plan to build a robust finance organization and investing in human capital to support the aggressive close, consolidate, and report demands
• Establishing a strong corporate governance framework, including ESG considerations and SOX compliance

Setting the stage

The summer of 2020 ignited the start of a rush towards IPOs that lasted through the end of 2021, leading to the most historic time period for both IPOs and SPACs. In 2021, over 300 IPOs¹ were completed, more than double the average from the past two decades, while nearly 200 SPAC mergers closed¹, multiples above the two-decade average. These statistics point to an unprecedented surge.

As we enter 2023, we’ve seen a different story unfold. We’ve seen these historic records significantly drop, with only about 100 transactions completed during 2022 through a traditional IPO and SPAC merger, respectively¹. The current economic market is more volatile than the recent past, with drivers such as rising interest rates impacting how the market is trading. Many companies are delaying going public and shifting their focus to profitability and/or other sustainable growth measures. While there is uncertainty to when the next IPO window will open, we draw upon the experience of the CEOs and CFOs who went public during the surge to understand why the time to get ready to go public may be sooner than you might think.

Emerging considerations for going public

On top of the traditional areas companies must plan for during the IPO process, new entrants now also need to consider the pending regulations surrounding Enhancement and Standardization of Climate-Related (ESG) disclosures.

On March 21, 2022, the SEC issued a proposed rule to enhance and standardize climate-related disclosures provided by public companies. SEC Chair Gary Gensler emphasized in his statement expressing support for the proposal that “if adopted, it would provide investors with consistent, comparable, and decision-useful information for making their investment decisions and would provide consistent and clear reporting obligations for issuers.”

At this time, private companies are not subject to the proposed rule. However, private companies that plan to go public may be required to comply with the proposed rule. Private companies will need to consider the implications of the proposed rule on their business for the following reasons: (1) ESG Equity Story - many in the investment community want to understand your ESG journey prior to making an investment decision and (2) ESG Governance and Reporting – Companies may need to comply with regulatory reporting requirements by the time they have their public offering and like other regulatory requirements, CFOs and CEOs want to be focused on their business operations and not implementing new processes and controls for reporting on items to their regulator.

Whether or not the proposed rule on ESG reporting requirements is approved, investors have shown repeatedly that they place value on a company’s efforts related to ESG initiatives and reporting, including grounding the narrative in comprehensive data. Companies going public will need to have a well thought-out ESG strategy and also align it to their overall growth story.

While the rule is not yet finalized, companies considering an IPO should prepare early for the reporting and disclosure implications specific to their business and understand the impacts, which may pose significant data gathering and process-related efforts.

Conclusion

Many of the pitfalls identified by CEOs and CFOs of companies that went public during the recent surge can be addressed during the IPO readiness phase. Companies need adequate time to prepare for a public exit and to ensure they have the appropriate team and infrastructure, which are key components to a successful IPO. No one knows exactly when the next IPO window will open; however, one aspect is very clear: preparing to operate as a public company requires early action to be executed successfully.