We recently spoke at Bloomberg’s webinar on the UK FCA’s proposed IPO changes. The replay can be accessed by registering here, and an email link will be sent to you.
IPOs, and demergers, are among the most challenging processes a management team can undertake. They are possibly the most strategically important step the company will take. They are highly complex process with many moving parts. They may be competing with a private sale process, also taking up management time and focus. And management are in our experience, very unlikely to have undergone any kind of public equity transaction before.
In this article, I’m not going to tell you about the things that everyone knows, or that the bankers, brokers and ECM advisors will support you on. The idea of this article is to suggest some practical actions that management teams can take to make the transaction smoother and easier, both in the heat of the transaction and on a day-to-day basis.
Select a Deal Captain
A single point of coordination for the transaction is essential. It’s extremely helpful to have the full focus of an individual with knowledge of the company, exercising oversight of the many complex demands, and managing the internal teams executing the various workstreams.
The deal captain needs to have the internal authority to command at short notice resources, information and documents across the company. So, the internal choices are typically the CFO, or sometimes the chief legal officer.
The downside is these individuals have a day job already. The transaction will take them away from that, and it’s a significant risk for the company that this distraction will impact on the company’s performance, or management’s monitoring obligations, or dilute the focus on the transaction. Of course, for well-prepared issuers with prior corporate and personal experience of capital markets transactions such as high yield bonds, the transaction process may be less of a challenge.
For other issuers, the tension between the transaction and the core task of running the company will be high. In this case, issuers should consider hiring in external expertise in known areas of weakness. Sometimes, a knowledgeable support person with audit or legal expertise can be a useful resource to prepare those materials.
But this won’t take the pressure off management of needing to understand and run the transaction process. Here, issuers should consider the services of a transaction manager such as The Deal Team, with experience and knowledge of the transaction execution process. This can make the difference between a demanding and distracting transaction with conflicting priorities to the day job, and a well-run transaction with an informed management team making the right decisions at each step.
Management will be Unavailable
Even with an external deal captain providing transaction leadership and knowledge, the transaction will take management away from the day to day running of the company. Increasing amounts of their time will need to be spent on the execution process as the launch date approaches. And during the marketing phase of the IPO, management will be almost completely unavailable.
We recommend management take a long hard look at authorisation procedures and reporting lines. Where can these be delegated? Perhaps temporarily, or possibly even permanently as the CEO and CFO will have the new public market stakeholders making calls on their time even after the transaction.
And for the intense transaction periods where management are in practice unavailable, prepare the company to avoid any demands for their time. These individuals will have an enormous responsibility to deliver a successful transaction marketing process. Whether it be internal reporting, regulatory processes, or supplier/customer engagements, seek to arrange either for post IPO, or well before.
Investor Relations in the Transaction
The IR officer will be the day to day interface with the market post transaction. A good IRO will provide a vital Board level service, informing the senior management and Board about market perceptions, feedback positive and negative, price targets, and shareholder changes. They are an important guide to the company on its new journey as a listed issuer.
In my previous career as an ECM banker, I was frequently surprised that IR was not appointed by the time of the IPO roadshow. No surprise that in our recent investor interviews on improving the IPO process, a recurring comment was that “the investor relations and communications strategy for many newly listed companies is perceived to be pretty poor.”
The IRO will have to defend the details of the company’s story from Day One post listing. Having them participate actively in the transaction process, guiding and understanding the development of the equity story, strategy and business plan, will give them the best possible toolkit to service the company’s new public stakeholders.
Start Creating the Data Room
The beauty parades are finished, the banks, lawyers, advisors and auditors are hired, and the kick-off meeting has taken place. And then…all these hires pretty much vanish while the dataroom is being created. This can take a few weeks and while it doesn’t need to be finished for the legal and business due diligence to start, it does need to be well populated.
The transaction process is a sprint of several months which is vitally dependent on meeting a very few key dates, so it is absolutely in an issuer’s interests to be efficient wherever possible. Preparing a substantially complete data room ahead of time will cut a chunk out of the timetable.
Well ahead of time, ask the bankers and lawyers pitching for the transaction for draft due diligence checklists, set up the data room (usually virtual), and start collating the company information. The advisors will almost certainly have checklists from prior transactions in your sector, which they can make generic for you. And while there will subsequently be some work updating the data room in response to specific questions, it won’t take nearly as long as it would otherwise.
Investors we recently interviewed on the topic of IPO processes voiced general frustration with the newness of independent non-executive directors. As one investor said “Do the new board members have to look up the headquarters on Google Maps?”
The new independent directors are a useful system of check and balances for the management team and Board, and bring useful external expertise. Ideally at least one has public company experience in a senior role. It isn’t in the company’s best interest to hire these individuals in a rush just before the transaction. After all, they will be taking responsibility for the prospectus and may need a fair amount of time to carry out their own due diligence.
Most importantly, who is right for the company? Those people may not be easy to find or attract. While we recognise private companies may be unwilling to make large changes to their board until the listing is certain, we think sensible INED designates will understand that if the listing doesn’t go ahead as planned, they will be required to leave the board.
And Finally, When on the Roadshow…
An important note here for the roadshow attendees. The roadshow will typically take two calendar weeks, usually over two weekends. It’s gruelling. Your days may start with 7am breakfast meetings, or no later than 8am when you are in a car heading around the city of the day. The meetings will be back to back, and you will be sick of sandwiches by the end of the two weeks. And when you’re not in meetings, you may be heading to or from an airport or in the air.
So a couple of recommendations to make this easier. Firstly, don’t try and run the company remotely at this time. You won’t be in the best position to make careful judgements, and your focus at this time should be on the transaction. Secondly, do take advantage of the weekend down time as much as possible, to rest and recover. If your home city is an overnight flight away, and the Monday location yet another, consider staying in the first city or somewhere in between rather than spending two nights out of three in an aeroplane.
We have focused here on some of the less frequently commented, yet impactful, ways of being more efficient in a listing process. There are of course many aspects of a transaction execution for a management to consider and as always, The Deal Team is here to help.
Please note – We’ve used our judgement to select the linked information which we believe may be of interest. We are not however responsible for the accuracy, completeness or relevance of the information and opinions contained therein. Some of the links may require a separate subscription to access.