Preparing a Company for an IPO

Executive Summary

Long before a prospectus is lodged or an offer price is set, a company preparing for an IPO typically undertakes a substantial internal transformation, often extending over one to two years or more. This preparation generally spans governance restructuring, financial reporting upgrades, management team development and operational readiness for the scrutiny that accompanies public company status. This article outlines, in general terms, what this preparation process commonly involves and why it can be a useful lens through which investors assess the quality and credibility of a prospective listing.

The extent and rigour of a company's IPO preparation can vary considerably, and investors should not assume that a longer or more elaborate preparation process guarantees a superior investment outcome. Nonetheless, understanding the general components of IPO readiness can help investors form a more informed view of a company's suitability for public markets.

Governance Restructuring

Private companies, particularly those that have grown under founder or private equity control, often operate with more concentrated decision-making structures than are generally expected of an ASX-listed entity. In preparing for an IPO, companies typically appoint independent, non-executive directors to the board, aiming to satisfy both ASX Corporate Governance Council recommendations and investor expectations regarding board independence. Board committees covering audit, risk and remuneration are commonly established or formalised during this period, along with updated policies addressing continuous disclosure, related-party transactions and securities trading by directors and executives.

This governance restructuring is not merely a compliance exercise. A well-constituted board with relevant sector and public company experience can play a meaningful role in overseeing management, particularly during the transition period immediately following listing when a company is adjusting to the demands of continuous disclosure and quarterly or half-yearly reporting cycles.

Financial and Operational Readiness

Financial reporting readiness is another central pillar of IPO preparation. Companies generally need to demonstrate a track record of audited financial statements prepared in accordance with relevant accounting standards, often requiring the restatement of prior financial information or the implementation of more robust financial systems and internal controls capable of supporting the reporting timelines expected of a listed company. An investigating accountant, appointed as part of the prospectus preparation process, will typically review this financial information as part of the broader due diligence undertaken ahead of listing.

• Upgrading financial systems and internal controls to support timely, accurate reporting.
• Preparing multiple years of audited historical financial statements for prospectus disclosure.
• Establishing forecasting and budgeting processes capable of supporting public market guidance, where provided.
• Reviewing and, where necessary, restructuring the corporate group ahead of listing.

The rigour a company applies to its own IPO preparation is often, though not always, a useful proxy for the governance discipline investors can expect once it is listed.

Building Management and Investor Relations Capability

Operating as a public company generally requires capabilities that may not have been necessary, or fully developed, during a company's private ownership period. This commonly includes establishing or expanding an investor relations function responsible for managing ongoing communication with shareholders, analysts and the market, as well as ensuring management has the experience and capacity to navigate the demands of continuous disclosure, market briefings and periodic reporting. Companies preparing for an IPO will often appoint or promote executives with prior public company experience specifically to help bridge this transition.

Key Considerations for Investors

• Assess the composition and relevant experience of the board being put forward ahead of listing.
• Consider the length and depth of the company's audited financial reporting history disclosed in the prospectus.
• Look for evidence of an investor relations function or clear communication commitments in prospectus materials.
• Recognise that thorough preparation reduces, but does not eliminate, the uncertainty associated with a newly listed company.

Conclusion

The work involved in preparing a company for an IPO is substantial and generally extends well beyond the visible marketing period of the offer itself. Governance restructuring, financial reporting upgrades and the development of public company management capability all contribute to a company's readiness for listed life, and the quality of this preparation can offer investors a useful, if imperfect, indicator of the discipline a company brings to its transition to public markets. This article is general information only and does not constitute personal financial advice.

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Information contained within these insights is provided for general information purposes only and does not constitute personal financial advice, an offer or recommendation to acquire or dispose of any financial product. Investors should consider their individual circumstances and obtain appropriate professional advice before making investment decisions.