• Going Public

Going Public

01 June 2015

Simon Peacocke, Advisory Partner, Corporate Finance Partner |

Going public can have many benefits. It can be a pathway not only to growth, but also to a stronger, more sustainable business. But it’s also not something to enter into lightly. While the rewards can be huge, getting to an IPO can be a lengthy process requiring significant resources.

In BDO’s experience, successful IPOs are characterised by a range of common factors. To help other businesses considering an IPO, we recently brought together a range of senior people with experience in the area, including experts from BDO’s Corporate Finance team, for an IPO seminar. In this article, we’ll discuss the key themes from the seminar including the potential benefits of IPOs, the key success factors, and the issues to consider along the way.

Why go public?

The most obvious benefit of an IPO is that it provides access to capital to grow your business. That’s a particular concern for the 90% of New Zealand mid-market businesses ($10-$50 million turnover) that are

privately owned. For the CEOs of these businesses, balancing their growth aspirations with the demands of servicing existing clients is a major issue – particularly when they’re so busy working in the business that there’s little time to work on it. Opening up capital for growth is key for this important sector, and an IPO can be an effective way to do it.

But the benefits of an IPO can be much wider than accessing capital. Our experience, and that of many speakers at the seminar, was that going public can also result in a better, stronger business. According to NZX CEO Tim Bennett, most business who list report that it’s been good for their business. Here are some of the reasons why:

▶ Better governance and business processes - When you’re a private company, it’s a little easier to let those things slide. But when you’re in the glare of the public spotlight, you need to have rigorous governance and business management processes in place – which is good for the business.

▶ Profile – as a public company you have a much higher public and media profile. While that can be uncomfortable, it can also be a big competitive advantage.

▶ Credibility – as a public company customers, investors and suppliers see you in a different light – especially in overseas markets where listing is seen as the ultimate business aspiration.

▶ Transparency – your share price gives you an immediate and constant measurement of your business performance. As a result, it drives

you to constantly think about your customers and their needs – and ultimately make better business decisions.

▶ Clear succession – listing on the share market provides a clearer, easier exit strategy for the founder, and helps the business focus on ensuring a smooth transition.

It’s not always a good time to undertake an IPO. Currently, though, a low- interest rate environment and the growth of KiwiSaver funds mean there is a window of opportunity. The emergence of the NXT market, with less complexity, simplified listing rules and a new approach to disclosures, has also created an easier pathway for smaller businesses.

Key success factors

Planning – and more planning

IPOs take time – usually a lot more than you expect. A detailed timeline, with key milestones and checkpoints, is essential to help you stay on track and avoid chewing up even more time and resources. Start the planning process by revisiting exactly why you’re undertaking an IPO in the first place and how much money you need to raise, as that clarity will help you with the important decisions you’ll need to make along the way.

Assembling the right team 

A successful IPO requires input from a lot of different people skills and expertise – so it’s important to get the right people around the table. Apart from the owner and company management, specific roles you’ll need to think about include:

▶ Lead Managers – as their role is to sell your business to the market, it’s essential to ensure they have a good understanding of your industry.

▶ Independent Directors – they play an important role in balancing the natural enthusiasm of the owner and management with an objective assessment of the business and in particular, it’s growth potential.

▶ Investigative Accountants – getting your numbers and assumptions right is key. The Investigative Accountant’s role is to review and provide assurance on the historics and future forecasts.

▶ Legal Advisers – there is a significant amount of documentation that needs to be produced including offer documents, banking agreements, employment contracts and more, all of which require legal review.

▶ Tax Advisers – IPOs can create complex tax issues, from the tax treatment of employee share plans to dividend payments to shareholders in other tax regimes. Getting a tax adviser involved at an

early stage will avoid nasty surprises down the track.

▶ Advertising / PR professionals – don’t underestimate the importance of profile and media presence in the success of your IPO. To sell the company to investors, you need a compelling story.

▶ FMA / NZX – staying in touch with the FMA and NZX throughout the process will make it easier to ensure you meet their requirements.

They are also an invaluable source of knowledge, information and resources.

The investment statement

The investment statement is at the heart of the IPO process – and it’s also one of the major benefits for your business. Often, your business strategy is

never set down in a coherent way or exists largely in the head of the owner. But to convince investors, the investment statement needs to articulate your strategy in an accessible and compelling way. Having that clarity is a significant benefit to your business going forward, whether you proceed with an IPO or not.

The new Financial Markets Conduct Act should make it easier to tell your story. The focus of the new act is on providing ‘clear, concise and effective’ information for investors, rather than a plethora of technical details. In preparing your investment statement, focus on what typical investors really need to know about your business, such as identifying risks that are particularly significant and how likely they are to occur.

Establishing a rigorous verification process is also critical. Every fact or number in the Investment Statement needs to be verified and documented, so a methodical process for cross-referencing data will save a lot of time and avoid potential issues later on.

Staying on message

Consistency is key. It’s vital that everyone involved in the IPO, especially in the sale process, is reading from the same script. Conflicting messages will not only confuse the market, but may lead to issues further down the line.

How BDO can help

BDO has extensive experience in helping clients prepare for and execute successful IPOs, including assisting with IPO planning, preparing a prospectus and independent accountant’s report, liaising with the Companies Office and NZX assisting Directors to understand their obligations, assessing your readiness for an IPO, and more. To find out more, contact your local BDO Adviser.

If you want to find out more about NZX visit www.nzx.co.nz or the new NXT market for small high growth businesses visit www.nxt.co.nz.

Other issues to consider

Business as usual during the IPO process

IPOs inevitably consume a significant amount of management focus. You may want to consider ‘backfilling’ some key positions to ensure you’re able to continue to meet your customers’ expectations during the process.

The importance of good record- keeping

Going public by definition exposes your business to a whole new level of scrutiny. That’s why it’s important to take good records during the IPO process and in particular, to document all key decisions. Business is uncertain – but if things don’t turn out as expected after the IPO, being able to demonstrate a considered, well thought through decision-making process will go a long way to avoiding potential issues.

Have a Plan B

In business, things can change quickly – often for reasons outside your control. It’s important to have regular checkpoints in your IPO process so you can assess whether it’s still the best option for your business – and to have a Plan B if it isn’t.