Readying for Success as the Public Offering Market Warms Up
As the market signals a renewed appeal, CFOs and management teams can take action now to ensure their organization is ready for a public offering when the time is right.
In a year marked by overall uncertainty, trends indicate the capital markets have hit the bottom of a historically slow period. With inflation somewhat moderating, interest rate hikes slowing, and market volatility waning, the stage is now set for a potential rebound in initial public offerings (IPOs) in 2024. Recent events have clouded the picture somewhat, but the short-term consensus is almost never right, and companies looking to enter the capital markets must allow enough time to properly plan across a host of critical activities. Doing so will allow the company to maximize optionality and have the flexibility to fulfill a transaction in a window where investor appetite is high.
Warming market conditions may signal opportunity
While the capital market activity in the first half of 2023 was historically slow compared to recent years, there have been some meaningful IPOs in the second half thus far — across the technology, consumer discretionary, and industrial sectors. With inflation moderating, interest rate hikes slowing, and market volatility waning,2 the likelihood of investor receptivity in 2024 has improved. Historically, the markets have performed well in an election year, and even better in the year following an election, so this trend is something to keep in mind for upcoming cycles.
In addition to changes in macroeconomic conditions supporting traditional IPOs, the second half of 2023 will be a pivotal time for SPACs to transact with a target company. In 2021, the market experienced record levels with over 600 SPAC formations. These SPACs are generally limited to a two-year lifespan, which could cause an increase in merger activity for SPACs looking to avoid liquidation.
Planning to go public? Consider these top readiness factors
For companies planning a public filing, a 12-24 month preparation period is recommended to properly plan and execute the transaction, ensure the organization is ready to operate as a public company, and successfully navigate the registration statement process. Common challenges generally stem from a lack of capital market expertise or a failure to properly prepare the entire organization for life as a public company. Here are the top areas to consider:
Financial Reporting Readiness: Ensure the company has a strong financial track record and growth story. Prepare for the financial reporting upgrades that will need to take place, such as audit enhancements required by the Public Company Audit Oversight Board (PCAOB) as compared with the standards required for private companies, interim reporting requirements, and any incremental financial statement requirements — such as those required by S-X 3-05 and 3-09.
Corporate Governance: Establish strong corporate governance practices to ensure transparency and accountability to shareholders. The rigor expected of public companies is different compared to those privately held, and it can be strengthened by enacting more robust processes such as establishing a diverse board of directors, with subcommittees such as audit, compensation, and nominating committees with one or more independent directors.
Capital Markets Readiness: During a capital markets transaction, it is imperative to optimize timing and execution, and doing so can be a difficult balance for the office of the CFO and company management team. Audits are often the longest pole in the tent, as described above, but company management should make sure to have the right investment banks in the company’s syndicate — to both lead the transaction and offer critical support after the IPO. In addition, it can improve timing to have a top-tier securities counsel that works regularly with the US Securities and Exchange Commission and the top investment banks, especially when the capital markets get busy again. In-house teams may choose to partner with an outside equity capital markets and investor relations advisor, which can help an organization create the right syndicate, ensure collaboration between the banks, and work with the research analysts on education and forecast model integrity. An effective advisor will sit only on the company’s side of the table during pricing and allocations, as well as help it deliver high-quality earnings calls and investor interaction. This type of advisory has significant advantages over going it alone.
Need help preparing for an IPO?
Through the entire business and transaction lifecycle, Riveron’s cross-functional team of capital markets, accounting advisory, investor relations, and other experts are here to help. Connect with us to learn more about successfully guiding your company’s strategic changes.
Capital markets considerations
To best position companies for an eventual IPO, Riveron provides ongoing capital markets insights tailored for the Office of the CFO, with expert considerations for ensuring preparedness throughout the IPO process and helping teams evolve toward public company operations.
What to read next:
IPOs on the Rise: How CFOs Can Prepare to Take a Company Public.
Footnotes
1S&P Global data
2VIX® Index did not exceed 25 in Q2 2023 compared to 44 days in Q2 2022; S&P Capital IQ
3ICR July 2023 SPAC Market Update & Outlook (icrinc.com)