Few periods in a company's lifecycle are as exciting or chaotic as the months and weeks leading up to an Initial Public Offering (IPO). Executives and employees alike dream of strike prices and stock options while facing the unique challenges of preparing for new regulatory requirements and presenting recent company performance in the best possible light in anticipation for road shows and analyst calls. It is a period where the smallest thing can matter significantly, and even the largest can be overlooked.
Unfortunately, there is a set of critical, potentially IT-related, issues that are easily overlooked during this busy time.
Regulatory, financial and operations reporting
Public companies need to be able to prepare more extensive and complete operational and financial reporting before and after the IPO.
For example, from a financial reporting standpoint, newly public companies must be able to calculate and report different financial metrics -- such as market capitalization, earnings per share and price/equity ratio -- than they have historically and may require both process and technology changes to do so.
From an operations reporting perspective, public companies often require both broader and more granular reporting of sales, pipeline statistics, annuity revenue streams, capital utilization and operating expense by product or division than private companies. Again, these reporting requirements can drive a need for process and technology enhancement.
Interestingly, technology companies - especially those that sell, implement or operate financial systems - often have the hardest time with this.
Public companies are subject to far more scrutiny from analysts, shareholders and the general public than their privately-held counterparts. Keeping the Street happy
Meeting this scrutiny and protecting market capitalization often involves the identification and remediation of potentially unattractive aspects of operations and the supporting information technology infrastructure.
During the period leading up to an IPO, companies often are challenged to maximize sources of competitive advantage, demonstrate their compliance with leading business practices (as well as regulatory practices), demonstrate transparency in their operations, quantify the growth in revenues they can support before additional capital must be expended and showcase the quality and sophistication of their operations and supporting information technology.
Technology and software companies often have to make the greatest effort to prepare themselves for that additional scrutiny. Companies contemplating an IPO should strongly consider having an independent party perform a brief due diligence of the company's business operations and supporting information technology using the same approach used to perform sell-side due diligence in private-party transactions to identify potential issues that could cause concern with analysts and develop strategies to remediate or minimize them. This usually is a brief and relatively painless process, but can surface issues that could otherwise negatively impact an IPO and even the initial market capitalization of a newly-public company. The two biggest reasons to have an independent party do this are (1) the company's executives will probably have very little time available to undertake any sort of a meaningful assessment in the run-up to an IPO and (2) the emotional attachment of most executives to their company under normal circumstances diminishes the necessary level of objectivity and precludes it entirely in the subjective pre-IPO period. Most public accounting firms, many consulting firms and even a company's bankers can provide or provide referrals to companies that can perform a timely pre-IPO due diligence assessment for a relatively low cost.
About the author
Matthew Podowitz is a strategic management consultant assisting entrepreneurial, middle market and Fortune 500 clients maximize returns on investment in operations and information technology and address business considerations in strategic transactions such as mergers, acquisitions and divestitures.
About Grant Thornton LLP
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Matthew Podowitz, CMC, CGEIT, CISA
Executive Director, Business Advisory Services
T 404.704.0113
E Matt.Podowitz@gt.com
