THE IPO EXECUTION COMMANDMENTS OF AN IPO BOARD CHAIRMAN
Richard Baker is one of the most experienced board chairmen in the UK. He is one of those extremely rare people from the corporate world to experience more than one IPO process, being chairman of DFS during its 2015 IPO, and chairman of Virgin Active through its years of pre-IPO preparation. He was also CEO of Alliance Boots, chairman of Whitbread, and a Director of the Lawn Tennis Association. He is currently an Operating Partner with Advent International Global Private Equity.
We became aware recently of Richard’s list of IPO Must Do’s through which he shares his experience. This checklist is a unique insight into the actual priorities and lessons from an issuer’s perspective. We are honoured to have Richard’s permission to reproduce the execution items on the list, and provide our own comment on them.
- “Hire an IPO specialist to manage the internal task.”
This is genuinely the first point in Richard’s list of Must Do’s. The urgent need to keep management focused on the day job, while also delivering a top-quality IPO process and preparation to be listed, is a severe problem for Board and shareholders. This is why The Deal Team was created in 2016, precisely to give corporates executing IPOs and M&A access to the first professional transaction management service globally and therefore bringing best current practice and extensive experience to their problem of internal IPO execution.
- “Hire the non-executive directors well in advance and get going on remuneration matters early.”
In the heat of an IPO execution, with all the relative uncertainty of markets and timing, it is all too easy to defer the Board hiring decisions until there is certainty. This inevitably delays discussion and decisions on remuneration and benefits of senior management following the IPO. Transferring from the private company world where the board is afforded significant flexibility, to the PLC world which is governed by rules, benchmarks and current practice incentive schemes, can mean lots of changes to the employment terms of the key managers. This is not a straightforward job. It can arouse a lot of emotion. The appropriate Board discussions are ideally not jammed into a single Board meeting taking place close to the IPO pricing.
We work with issuers to properly schedule and address the many issues involved in transitioning to becoming a listed company, which are not covered by a purely transactional point of focus. Which can range from Board appointments, through remuneration, Investor Relations, Company Secretarial, corporate and board calendar, material information handling procedures, and insider dealing procedures.
- “Remember the prospectus will make public a lot of private information about shareholdings and salaries of senior people. Brief in all exceptions and controversial news well in advance.”
An often-overlooked part of the need to manage the internal executive team. Boards and CEOs need to be ready to have the hard conversations about differential compensation early on.
- “Really take time to brief key press well, once the ITF is out. It is easily forgotten but will set the tone of the post float coverage.”
A well-rehearsed and active press coverage at IPO, particularly when there is a domestic press audience, is an important part of the transition from private to public status. There will be enhanced scrutiny from all stakeholders post IPO, not just shareholders. Prepare well for this engagement, especially being internally open and honest about how to handle the tough questions.
- “Be really clear in advance what fees will be charged to management.”
If management are selling in the IPO, or even afterwards, decide on the parameters early as it takes considerable time to arrange new share accounts with the lead banks (or others). Being clear on the fees they will be charged is also essential.
More broadly, it is useful to establish a clear agreement with the shareholders selling at IPO as to how the IPO fees and expenses will be split.
- “Discuss management sell down early on with the banks. establish 30% as a minimum. It was never mentioned on the roadshow.”
The IPO is a material monetisation event for management teams, for life changing amounts of money. Treat this desire with great respect and address it up front, not least as mentioned in 5 above it can take time to arrange the new share accounts.
We are delighted that Richard has allowed us to help future issuers by sharing his experience as an issuer during these complex processes. Too often, issuers can find themselves unsure how to prioritise the key steps and necessary focus areas to execute the transaction – as well as preparing for the transition to a listed company. The Deal Team’s professional transaction managers are here to support company executives with the minimum of distraction in preparing for the transaction, whether M&A or ECM. Through which we create long term value, by giving shareholders and management teams back their time.