Increasingly more entrepreneurs’ attention has turned towards the stock market. An IPO could be an apt alternative to raise growth capital or execute an exit strategy, but what does it mean for entrepreneur’s role as an owner? How does it alter company governance?
Often in growth companies, the same individuals juggle roles, including ownership, board membership, and operational management. However, during an IPO project, these roles tend to segregate as board composition and management’s incentives are viewed from different perspectives. It’s a time for entrepreneurs to assess their future roles – whether they steer operational management or direct strategy from the board.
A public company status often motivates entrepreneurs and management by enhancing visibility and reputation. This could provide a competitive edge while recruiting talent. Owing to the regulatory scrutiny and oversight, a stock market listing can also stand as a badge of quality. Many listed companies reported its positive implications e.g. on collaborations with foreign clients or suppliers.
But how does transitioning to a public company influence the daily operations?
For many growth companies, it’s a significant leap that impacts processes and governance. Ensuring the reliability of reporting and transparency is crucial.
It really isn’t about policy quantity or paperwork but critical analysis of operational procedures. Mere paper trails won’t ensure operational efficiency; properly implemented processes lead the way. Thus, for privately-owned growth companies, an IPO often acts as a quality project for management and financial reporting. Thus, the development work executed during listing can spur business operations and growth.
How can a company assess and improve its readiness to operate as a listed company?
Typically, IPO readiness evaluation or a ‘Pre-IPO study’ is conducted at least 6-12 months before a planned listing. The sooner, the better, since it provides more time for management to build readiness on a solid basis.
An IPO readiness assessment aims to identify critical aspects that need development to ensure a successful IPO from all stakeholders’ perspectives.
A well-executed IPO readiness assessment provides an insightful view of the company’s current processes and reporting, identifies improvement points, establishes a readiness timetable, and streamlines further diligence processes. It supports the company in developing its reporting and governance, making the process valuable, even if the IPO plans are shelved.
So, are you ready to take the leap and shift gears to high-performance public listing?
Päivi Pakarinen
IPO Leader, Strategy and Transactions, EY