With the IPO market heating up, now may be a good time to seriously consider taking your company public. Determining whether your company is a good IPO candidate requires careful thought and professional planning.
“It is important to start planning now because it could take a year or two before your company is ready,” says Ryan C. Wilkins, shareholder in the corporate and securities practice at Stradling Yocca Carlson & Rauth.
Smart Business spoke with Wilkins about the steps companies should take before going public.
What do companies need to consider when deciding whether to go public?
Give careful thought to whether the upside of going public outweighs the downside. Potential benefits include: better access to the capital markets, the ability to use equity for acquisitions and the cachet associated with being a public company, which can help attract top talent and open doors to new customers or suppliers.
The drawbacks can include: increased scrutiny on your short-term operational results, the public disclosure of sensitive information that may be used by your competitors and the significant ongoing costs associated with being a public company. These costs principally relate to the audit of financial statements, the preparation and filing of reports with the SEC, and compliance with numerous SEC and exchange listing requirements (and extra personnel you may need to hire to manage these requirements).
What comes after the decision to go public?
The first thing you’ll need to do is engage reputable bankers. Retaining the right team is critical because bankers with an outstanding reputation for leading successful IPOs within your industry can send a strong signal about your company to the market.
Next you’ll want to retain reputable accountants and attorneys. These advisers are also key because of the advice they provide during the offering process, as well as the signals they can send to the market.
What happens after the team is selected?
Once your deal team has been selected, the bankers will set an ‘all hands’ organizational meeting to discuss the proposed deal timeline and allocate responsibilities for key action items.
Next, your advisers will focus on preparing the registration statement, which is the main offering document filed with the SEC. The registration statement provides a detailed discussion of many elements of the company, including its business, management and historical financial information. While recent rule changes under the JOBS Act have made compliance with some of these requirements less burdensome for companies, the preparation of this document is still a major undertaking that will take a period of several months.
The registration statement serves two main purposes. First, it is a marketing document designed to entice investors to make an investment in your company. As a result, the deal team will want to draft the document to position your company in the best possible light. However, it is also a legal document, and misstatements in (or omissions from) the document can result in liability against your company and management team. Because of these competing interests, preparation of the registration statement is a difficult and time-consuming process.
What happens after the registration statement is ready?
Once the registration statement is ready, it is filed with the SEC. It usually takes approximately 30 days for the SEC to review and respond with comments. Depending on the scope of the comments, this comment process can involve multiple iterations over a period of several months.
While awaiting comments from the SEC, it is important to continue to work diligently on completing other elements of the offering. For example, the company and its advisers will need to prepare a stock exchange listing application, adopt corporate governance policies and negotiate an underwriting agreement with the bankers. At the same time, the executive team needs to continue running the business and meeting projections. This will strengthen your case to potential investors — that your company represents a strong investment.
Ryan C. Wilkins is a shareholder at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4115 or email@example.com.
Website: Find Ryan Wilkins’ profile at www.sycr.com/Ryan-C-Wilkins.
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