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An overview of the IPO Readiness process. This presentation touches on the necessary prerequisites a company must have prior to filing, the filing process itself, and what is required “after the bell rings.”
Citation preview
Are You Ready for an IPO?
Speaker
Shawn Degnan, Managing Director
Leader – Growth Markets
MorganFranklin Consulting
© MorganFranklin. All Rights Reserved. 2
About MorganFranklin Consulting
MorganFranklin is an execution-oriented business consulting and technology solutions company.
We deliver financial management, performance improvement, and technology enablement solutions
to industry and government clients.
Business Facts
Founded in 1998
Headquartered in the Washington, D.C. area
European operations established in London in 2007
National presence and international reach
Diverse full-time workforce comprised of industry, global consulting, Big Four,
and government professionals
Technical excellence: CPA, CIA, CISA, CISSP, MCSE, RCDD, MBA, Ph.D., PMP
Fast access to a powerful network of trusted partners with solid industry experience
Unique blend of industry and government clients
Industry recognition as a top consulting firm in the U.S.
Recognized for industry-leading workplace best practices
© MorganFranklin. All Rights Reserved. 3
Agenda
Understanding Your Options – Is an IPO Right for Your Company?
Key Tasks Before, During, and After the IPO
Technology and Process Considerations
Roles of the IPO Team
Case Study
© MorganFranklin. All Rights Reserved. 4
Understanding Your Options – Is an IPO Right for Your Company?
Options for a Capital Raise, Exit or Liquidity Event
Sale to a Strategic Buyer
Sale to a Private Equity Firm
Joint Venture or Strategic Alliance
Debt
ESOP
Exempt (144A) Offering
IPO
© MorganFranklin. All Rights Reserved. 5
Understanding Your Options – Is an IPO Right for Your Company?
Advantages of IPO
Source of Increased Capital
Public Valuation of the Company
Public Company Stock = Currency for Acquisitions
Access to Capital Markets for Future Financing Needs
Can Retain Control
Prestige for Company & Management
Publicity
Attract Employees
Stock Options as a Compensation Alternative
© MorganFranklin. All Rights Reserved. 6
Understanding Your Options – Is an IPO Right for Your Company?
Disadvantages of IPO
Going Public is an Expensive Process
Disruption of Day-to-Day Business Operations
Management Focus on IPO
Close Scrutiny from Public/Investors/Regulators
Loss of Confidentiality
Increased/Costly Reporting Requirements
Quarterly Earnings Pressure
© MorganFranklin. All Rights Reserved. 7
Key Tasks Before, During, and After the IPO
Timeframe Capability Needs Key Areas of Focus
Long-Term Planning • Strategy & Planning
• IPO Experience
• Design/Build IPO Roadmap & Key
Task Calendar
• Investor Awareness
• Growth & Continued Performance
Pre-IPO Readiness • IPO Experience
• Hands-On Resources
• Design/Build Public Company
Ready Processes & Technology
• IPO Filing
• Growth & Continued Performance
IPO Cutover & Initial
Operations
• Public Company
Expertise
• Hands-On Resources
• Design/Build Public Company
Ready Processes & Technology
• Establish & Meet Investor
Expectations
• Public Company Reporting
• Growth
Ongoing Operations • Cost Effective Control
• Knowledge Absorption
• Operate/Maintain
• Refine Processes & Technology
• Internal Controls
© MorganFranklin. All Rights Reserved. 8
Key Tasks Before, During, and After the IPO
While 12-18 months might be ideal for completing a full scale IPO readiness,
most companies don’t plan or prepare for IPOs that far in advance. Why?
Costs & Resources
Primary Focus is Growth
Markets Change Unexpectedly
Opportunities Present Themselves Quickly
Businesses Must Respond Rapidly
© MorganFranklin. All Rights Reserved. 9
Key Tasks Before, During, and After the IPO
IPO Readiness Should be Viewed as a Continuum: The IPO Puzzle is Not Complete at Filing; Only Critical Functions Must be A+ Capable
IPO Planning & Preparation Checklist
Assess Current vs. Public Company Operations
Assess Financial & Regulatory Reporting
• Capacity & Quality of Staff
• Processes & Systems
Improve Processes & Systems for Financial & Management Reporting
• Streamline & Automate Processes
Optimize Organization Structure, Roles, & Responsibilities
Design IPO Roadmap & Key Task Calendar
• Audit Readiness
• Registration Statement
• Process Improvement
• Technology Optimization
© MorganFranklin. All Rights Reserved. 10
Key Tasks Before, During, and After the IPO
IPO Planning & Preparation Checklist
Review & Document Accounting Policies
• Compliance with SEC Requirements – More Stringent Accounting & Disclosure than for Private Companies
• Areas of SEC Focus & Comment:
• Revenue Recognition
• Business Combinations
• Impairment Analyses
• Stock Compensation – ”Cheap Stock”
• Fair Value
• Segments
• Capitalized Software
• Debt & Equity Instruments
Prepare for SEC Comments
Document all Accounting Positions
© MorganFranklin. All Rights Reserved. 11
Key Tasks Before, During, and After the IPO
IPO Planning & Preparation Checklist
Prepare “SAS 100 Ready” Interim Financial Results (8 Quarters)
• Revenue & Expense Cutoff
• Quarterly Stock-Based Compensation Expense
• Interim Accruals
• Up-Front Planning to Ensure an Efficient Review by Auditors
Prepare for Sales & Investor Awareness – Roadshows
Address Growth & Continued Performance
© MorganFranklin. All Rights Reserved. 12
Key Tasks Before, During, and After the IPO
S-1 Production
Produce Regulation S-X Compliant Financial Statements (the F-Pages)
• Calculate EPS
• Prepare EPS & Segment Disclosures
• Research & Document Technical Accounting Issues
• Evaluate Impact of New Accounting Pronouncements (New Disclosure Requirements)
Compile Summary & Selected Consolidated Financial Data (3 & 5 years)
Prepare MD&A
• 3 Fiscal Years & Applicable Interim Periods
• Stock Compensation & Valuation Disclosures (12 Months Prior to Most Recent Balance Sheet Date)
• Critical Accounting Policies – Address Judgmental Areas
Respond to SEC Comments – Be Prepared!
Prepare for the Comfort Letter Process
• Maintain Supporting Binder for all Financial & Operational Information
© MorganFranklin. All Rights Reserved. 13
Key Tasks Before, During, and After the IPO
After the IPO, There is Much to Address…
Ongoing Operations
Implement Streamlined & Automated Processes
Train Employees on Technical Accounting Matters
Establish Internal Audit Function
Develop & Maintain Corporate Accounting & Operational Policies & Procedures
Sarbanes-Oxley 404 Compliance
Prepare Documentation & Design Gap Analysis Early
Don’t Forget About IT
Identify Gaps & Perform Remediation
Know Material Weaknesses Need to be Disclosed in Form S-1
Leave Sufficient Time for Testing
Prepare 404 A – Management’s Assessment of Internal Controls
Obtain 404 B – Auditor’s Assessment of Internal Controls
© MorganFranklin. All Rights Reserved. 14
Key Tasks Before, During, and After the IPO
After the IPO, There is Much to Address…
Post-IPO Reporting Requirements
Prepare Annual Reports on Form 10-K
• Prepare for Annual Audits
Prepare Quarterly Reports on Form 10-Q
• Prepare for Quarterly SAS 100 reviews
Prepare for Earnings Calls & Press Releases
Prepare for Form 8-K Requirements – Stay in Touch with your SEC Counsel
© MorganFranklin. All Rights Reserved. 15
Technology and Process Considerations
Common Misconception – Private Company is Ready for the Public Market
Companies Quickly Encounter Financial & Operational Challenges
More Stringent Documentation Requirements for Accounting Policies
Increased Risk Associated with Restatement
Changes to Historical Financial Statements & Additional Disclosures
Required to Comply with SEC Requirements
Accounting System Inadequacies
Data, Data, Data – Timely & Accurate
More Rigorous & Reliable Forecasting & Budgeting
Stringent Corporate Governance Requirements
Professional Investor Relations Function
© MorganFranklin. All Rights Reserved. 16
Roles of the IPO Team
Team Member Role
Internal IPO Team
• Chief of Staff
• “The Hustler”
• The Accounting Nerd
Not Just Finance & Accounting
SEC Counsel Knowledgeable Regarding Company & IPO Process
(Hands-On)
Investment Bankers Manage, Market, & Support the IPO
Underwriters’ Counsel Advise Underwriters on Legal Issues
Independent Auditors Must be Registered with PCAOB
IPO Advisor Technical Issues, Draft Statements & MD&A, Coordinate
Process (Hands-On)
Financial Printer Knowledgeable Regarding SEC Printing & Filing
Guidelines
Investor Relations Internal or Outsourced
© MorganFranklin. All Rights Reserved. 17
Case Study
Challenge
Company Experienced Exponential Growth Since Founding in 2006 &
Lacked Accounting & Finance Infrastructure to Meet IPO Timeline
Required Assistance with:
• S-X Compliant Quarterly Financials for Three Years
• S-1 Registration Statement
• Technical Accounting
• Sarbanes-Oxley Section 404 Compliance
Organizational Meeting in Five Months
Initial S-1 Filing in Six Months
© MorganFranklin. All Rights Reserved. 18
Questions & Answers
Are You Ready for an IPO?