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It is first published in The Business Times' Enterprise 50 supplements on 29 November 2013.
Taking a company public is an exciting and challenging process. For some, it marks the recognition of success in the public spotlight; for others, it is an opportunity to secure the capital needed to accelerate growth and the beginning of a new journey.
However, going from private to being publicly listed is not without its challenges. It takes rigorous planning, compelling strategies and a lot of hard work. There are market conditions to be considered and regulatory reporting requirements to fulfill, as well as time and resource pressures and stakeholder management challenges. And, it may not be the right strategy for every company.
A winning IPO
Once you have decided that an Initial Public Offering (IPO) is the right move for your company, your appointed reporting accountant, bankers/sponsors and legal advisors can guide you through the regulatory process.
Thus, the challenge to companies planning an IPO is to rise above the processes and focus on the strategies to achieve their IPO objective.
- A compelling growth story
When a company embarks on an IPO, potential investors are buying into the company's vision and future potential based on its historical performance and track record.
And with a compelling growth story, half the battle is won.
Getting shareholders on board with your vision and growth potential is critical to the success of your IPO. The challenge lies in being able to effectively communicate the passion to deliver on that promise.
It is important that your message to shareholders addresses their universal concerns, which are primarily growth potential, profit growth, sustainability, return on investments and increase in shareholder value. Some of these concerns will challenge the company's management to strike the right balance between short-term gains and long-term growth.
- Timing is everything
In deciding when to make an IPO, several factors have to be considered, key of which is the general market condition.
A difficult market could drive down your IPO price and reduce the funds you can raise. On the flip side, in a market primed for IPOs, you may raise the funds you need and be able to realise your ideal valuation of your company when the timing is right. The question here is whether your company is ready when the time comes. Have you considered the need to reorganise for purposes of streamlining business operations? How about achieving tax efficiency, aligning strategies and objectives, eliminating any potential conflict of interest? The considerations are numerous and on varied fronts.
Consider the commitments before listing
Before going public, companies need to understand that there are corporate governance and reporting requirements that a public company has to fulfill.
To meet these requirements may mean having to restructure the organisation and formalise key processes. It may also require the company, if they have not already done so, to establish a sustainable compliance process supported by a sound risk management structure. Policies and procedures will have to be well documented, and information and accounting systems will have to be robust.
This process becomes even more crucial when companies embark on a cross-border IPO where accounting and regulatory requirements can vary significantly across different jurisdictions.
Knowing where to list is important
In choosing a location to list, IPO valuation is not the only key factor. Companies must take into consideration a host of other factors including the cost of listing and maintaining the listed company status, the choice of market or exchange and nonfinancial benefits such as size and maturity of the investing community, and ease of access to the financial market.
In Singapore's case, it is a choice destination for its pro-business environment, infrastructure and efficient regulated marketplace. Companies that list here are further attracted to the ease of access to the international investment marketplace as well as the fact that the environment is conducive to raising capital for growth.
The Singapore Exchange (SGX) has also introduced listing rules that are market-oriented to ensure flexibility while recognising good corporate governance and transparency. For instance, companies with diverse backgrounds enjoy some level of flexibility with respect to seeking public financing in Singapore.
Focus on growth
Companies would do well to give serious thought to how they utilise the funds raised from the IPO. The additional injection of funds could go towards acquisitions that would speed up expansion plans and in turn, drive up the company’s market value. Additionally, a well-executed IPO growth strategy could enhance the reputation of the company.
As a business owner, you will need to first determine your reasons for wanting to go on the IPO journey and to check against these reasons at key milestones. Ask yourself,
- What you hope to achieve through growth? What are the advantages and disadvantages of each of the options?
- In line with your growth objectives, what are your options as going public may not necessarily drive growth?
- Are you ready for the closer scrutiny that public listed companies are subject to in the name of better corporate governance and transparency?
- Are you prepared to cede some, if not all, control to professional managers?
Pitch it right
All said, the simple truth is that there is no straight forward answer to going public.
Growth at all cost, rightly or wrongly, is often the mantra of entrepreneurs I meet. However, the decision to go for an IPO cannot be based solely on the need to raise capital for growth. There are other ways to raise capital, for instance, through debt or private equity.
An IPO decision should be based on multiple, and very possibly inter-related, business and organisational considerations that may be unique to your industry and your company.
At the end of the day, there should be a compelling strategy but how this strategy is executed in your markets of interest will vary. The key thing to remember is to shape your pitch to appeal to the market and investing community, and be prepared early. This is so that when the time is right to launch your IPO, you are able to raise your funds, maximise your company’s value and grow your company from strength to strength.
Article is contributed by Barry Lee, Audit Partner at KPMG in Singapore.