Essential Tips that you need to know to launch an IPO?

The IPO of any company is considered to be the acid test of the popularity of the CEO or founders of the company. In India there are cases like Reliance Industries, Infosys, TCS and Bharti Airtel which have created tremendous traction and value since they came out with the their IPOs. It has given them a profile and value that is hard to match. If you look at globally, Amazon, Google and Facebook are examples of companies that have generated tremendous value in a short time post their IPOs. Are there any interest takeaways or tips that you can learn about launching an IPO from these stellar examples? Let us look at 15 such very interesting lessons for potential IPO candidates.

15 tips for launching an IPO; and doing it smartly

  1. Don’t be in a hurry to come out with an IPO. Gauge your business model and ensure that you really have a growth story to tell the shareholders. That was the problem with PSU banks. They came into the market with a lot of fanfare but could not sustain investor interest later on. Weigh you IPO options properly.
  2. You cannot come out with an IPO without a good finance team in place. It is this finance team that will help you with granular costing, projecting cash flows, advise you on the ideal capital structure etc. The CFO will especially have an important role to play as he will be the key link with the investors in any IPO. Try and put a top quality team in place. It will cost you but it is worth the while.
  3. Are there big names in your board? You can have independent directors who have a reputation and standing in the market. It may be a challenging task getting them but it is essential to have a marquee board in place. Also if you have an anchor investor, try and get some of the respected names on your board. When it comes to making road shows to institutions, these things make a lot of difference.
  4. Put your systems in place. You can run like a typical mom-and-pop shop after you come out with an IPO. You need to rely heavily on systems, processes, documentation, proper tax compliance, administrative structures, hierarchies etc. These are all signs of a matured organization and they can make a big difference to the IPO.
  5. Engage your investment bankers as early as possible. You must surely have your investment bankers in mind and start engaging and bouncing off the idea with them. You can get a lot of useful buy-ins and buy-outs into your story at this stage.
  6. Even before you file your IPO, start meeting a cross section of institutional investors. They can tell you exactly the kind of appetite for the IPOs in your industry and the kind of valuations and demand to expect. These are useful inputs even before you actually embark upon you IPO.
  7. Chaos was ok when you were a small closely held company. When you want to come out with an IPO, you need to have your books in order. You can afford income tax orders or GST orders at a later stage. Sit with your auditors and work out the vulnerable points. If required adequately document and close out these issues.
  8. Have a clear communication plan laid out in advance with your PR agency. When to release ads in newspapers and when to release hoardings? When to start sending focused email campaigns and how to target? How to use advanced facilities like SMS campaigns, digital methods and apps to enhance your appeal? How to use Google to spread the word across. All these need to be planned in advance.
  9. Ensure that all your account and audit filings are done. Ensure that the DIN numbers of all your directors are active and updated. Also ensure that there are no negative comments about the company in the MCA website. These are issues that are best sorted out in advance to avoid last minute surprises.
  10. Are there are any corporate governance issues? Have your auditors qualified your reports for any reason? Get these items resolved well in advance so that they do not becoming a talking point around your IPO time? There are enough people in the market who would like to speak ill about your company. Be cautious.
  11. Take a bottom approach to your financial statements and take an analyst view. If required, run it through your investment bankers and your bankers. How is the working capital managed? Is the debt / equity ratio too high? Are the profitability margins at par with industry or below the benchmarks? Have a measure of these items.
  12. How is your company handling competition and how will you handle disruption. These are the questions that will surely come up in the road shows. Have convincing answers to these questions and rehearse your pitch to perfection.
  13. Check out the cash flows of the company. Investors should not get the feeling that your business is starved for cash and so you are desperate for the IPO. That will substantially reduce your bargaining power when it comes to pricing and negotiating with brokers and investment bankers.
  14. Have an earnings plan and how you will deliver earnings to your shareholders and to the market at large. Earnings and guidance matter a lot. It is always better to under promise and over delivery. Your value is based not on the revenues and profits you generate but on the expectations you generate.
  15. Last, but not the least, time your IPO to perfection. Don’t bunch your issues with mega IPOs or with an aggressive government divestment program. Your issue is likely to be crowded out. This closes the loop on your IPO preparation.