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 Going
Public – the 100 Day Drill
by
Brendan Dougher
of Pricewaterhouse Coopers
Pricewaterhouse
Coopers' Brendan Dougher explains that taking a company
from startup to IPO takes a lot of hard work and planning.
There
are many startups going public these days. However,
there is a big difference between those that make it
and those that don't. First and foremost, you must initiate
a well-thought out plan and engage an experienced team
of professional advisers, which includes an accountant,
who is experienced in developing IPOs and knows the
ins and outs of the entire process.
Your
accountant will need to prepare three years of audited
financial statements for the IPO process. It is advisable
to have your accountant review the company's internal
controls and establish accounting policies, such as
revenue recognition, which will ensure that there are
no surprises in revenue levels and how net income and
operating results are reported.
Having
an experienced team of financial advisors vastly improves
your chances of meeting your company's filing date.
For instance, material weaknesses in internal control
systems can postpone or derail an IPO. In addition,
your team of advisers should have a solid understanding
of current SEC initiatives and hot buttons, which will
increase the likelihood that you have the necessary
information in the prospectus. This will minimize SEC
questions and enable a timely response.
A
good place to start your search for the right team is
in the information that Nasdaq makes available to potential
registrants, listing the underwriters, attorneys and
accountants in the latest public offerings. Pay special
attention to those experienced in your industry and
keep in mind that the expertise you seek in your team
of advisers should match that of the underwriting group.
The Next 100 Days
With these initial steps completed,
you are ready to start the offering phase. The 100
days of critical activity will determine "let's go"
and hopefully getting the money. This time period can
seem like a rapid succession of boot camp drills, some
of which must be performed simultaneously. Unlike a
fitness drill, however, a company that puts in a weak
performance, despite engaging professional advisers,
could be held liable for misstatement, material omission
of fact, or inconsistencies. That's why the 100-day
drill can test an IPO team's mettle.
To
'go public,' a company must follow a process set out
by state and federal law and SEC regulations, fulfilling
all of the information requirements before filing a
final prospectus. Although you're not expected to know
all the technical details yourself, your company needs
to be sure to engage experienced professionals who do.
The
IPO candidate's underwriters will initiate the process
by eliciting interest and gauging the response of investors,
to help determine the offering's likelihood of success.
Then, within the next 60 days, four major activities
are conducted simultaneously by the underwriting group,
which is comprised of the company, its investment bankers
and their respective counsels. These are:
- Preparation of a preliminary prospectus, which includes
descriptions of company history, its future prospects,
risks associated with the investment, securities
to be issued, and how your company plans to use the
proceeds from the sale.
- Investigation of the company's affairs as a part
of the underwriters' due diligence. This includes
ensuring the completeness and accuracy of information
relevant to the offering. The preliminary prospectus
is reviewed by the SEC and final comments are generally
received on about day 80, so the IPO team may update
it. The prospectus is a critical sales tool, and
an integral part of the road show presenting the
company's story to potential investors, which occurs
from about day 70 to day 90.
- Preparation of marketing materials; and
- Monitoring of market conditions. This will continue
until day 90, to assess the impact on pricing for
shares that will be issued.
Lastly,
before you go public, you need to prepare for closer
scrutiny and understand how operating as a publicly
held company changes how you do things. For example,
your fiduciary responsibility to shareholders may dictate
certain actions that you otherwise might not have chosen.
Running a publicly held company is going to cost more
because of shareholder relationship responsibilities,
including quarterly and annual reporting, and numerous
SEC reporting requirements with the accompanying accounting
and legal provisions.
Survival
Tips
The IPO process can be arduous and potentially frustrating.
We offer the following survival tips:
- Meticulously manage the process
- Clearly define your expectations, both internally
and to your investment bankers
- Thoroughly prepare for the organization meeting
- Anticipate and address all financial requirements
- Address key issues early in the process
- Select independent board members and members
of the audit committee
- Draft the Business Section of the Prospectus
yourself
- Foster a collaborative environment for the
authors of the prospectus
- Use professional advisers to help prepare
for the road show
- Keep the management team focused on successful
day-to-day operations
About
the Author
 Brendan
Dougher is the partner-in-charge of PricewaterhouseCoopers
New Jersey Technology / Info-Comm / Entertainment &
Media (TICE) practice group, based in Florham Park.
PricewaterhouseCoopers (www.pwcglobal.com)
provides a full range of business advisory services
such as audit, accounting and tax advice; management,
IT and HR consulting; financial advisory services including
mergers and acquisitions, business recovery, project
finance and litigation support; business process outsourcing
services; and legal services through a global network
of affiliated law firms.
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