The importance of good advice Valuation and pricing are complex and hugely important parts of the IPO process. Given the somewhat divergent interests of the issuing company and the underwriter, and the difficulty of the decisions to be made at each step of the process, businesses going through an IPO should seriously consider hiring a trusted independent financial advisor, such as EY professionals. Securing trusted, independent advice can help an issuing company to find the right balance between value and attractiveness when setting the offer price — a balance that help will maximize the capital inflow from the IPO. About the author Gregory Hughes is a partner in Transaction Advisory Services and IPO Leader for the Middle East and North Africa (MENA), Ernst & Young LLP. He has undertaken a wide variety of internationally- focused cross-border transactions for financial and strategic investors, including sell-side and IPO projects for various clients in the UK, US, Hong Kong, India, and the Middle East and North Africa. Gregory has approximately 20 years’ experience in IPO and M&A transaction preparation and execution initially in the UK, followed by secondments to Hong Kong, Mumbai and Dubai. He is an FCA and completed his MBA from MBS and HKUST. Gregory has worked closely with various exchanges and regulators and various corporate and PE clients planning and providing IPO and exit readiness workshops and roadshows around the world. Contact Gregory Hughes IPO Leader MENA, Ernst & Young LLP 27 Floor, Al Saqr Business Tower Sheikh Zayed Road P.O. Box 9267, Dubai – 9267 United Arab Emirates Telephone: +971 5650 35085 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa | 51
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IPO planning and plan B options Careful planning and keeping your options open is essential for IPO success. Have you drawn up your road map? EY IPO leaders’ insights Europe, Middle East, India and Africa | 53
IPO planning and plan B options Perfect planning What are the secrets to planning a successful IPO? Mayur Pau For many fast-growing private companies • Prepare your business for life on a public looking to fund growth, the rejuvenated market market. Ensure the business’s systems, is an attractive route to raising capital. However, operations, reporting and corporate it also presents a number of challenges. governance will meet the level expected of a listed company. Planning your IPO • Formulate your equity story. Outline a clear Ideally, planning should begin up to two years direction and strategy to deliver growth and before the listing, taking into account a number returns to potential investors. of factors when designing an IPO road map: Simple steps • Decide whether an IPO is right for your business. Some businesses may not be ready When considering an IPO, companies should not for an IPO, and some may not have the underestimate the scale of the undertaking. right culture. A few simple steps can make the process an • Identify the best market for your IPO. There achievable, value-enhancing journey: are a number of high-performing markets companies should consider, and the choice of • Begin the IPO readiness process early enough venue needs to be carefully considered from a to allow time for getting the pre-listed regulatory and financial perspective. company to function like a public company. • Ensure a strong management team is in place. • Commit enough resources to build a quality For successful pre- and post-IPO phases, the management team, a robust financial and management team needs to have a blend of business infrastructure, and a corporate capabilities and a high level of experience. governance and investor relations strategy that will attract the right investors. • Carefully consider the level of scrutiny and accountability you will face as a public company. Strategic considerations IPO preparation IPO transaction IPO and IPO planning 6–12 months prior to IPO 1–6 months prior to IPO Being public 12–24 months prior to IPO Post-IPO 54 | EY IPO leaders’ insights Europe, Middle East, India and Africa Contents
Perfect planning “For successful pre- and post- IPO phases, the management team needs to have a blend of capabilities and a high level of experience. Key tasks About the author Mayur Pau is a partner and the IPO Leader for the Middle East A good IPO planning process should include the following and North Africa, Ernst & Young LLP. key tasks: His areas of knowledge include stock exchange assignments, lead advisory (buy side and sell side), vendor due diligence, 1. Carry out an IPO readiness assessment pre-acquisition due diligence, commercial due diligence and One of the first steps in preparing for an IPO is an IPO strategic reviews. readiness assessment. EY teams can help with this, through He has led a number of transactions (including cross border), a combination of direct observation, and interviews and advising clients on flotation (AIM and LSE transactions). workshops with senior management to help identify gaps Mayur has over 15 years’ experience working in corporate that need to be addressed. finance across a number of sectors, including financial services, hospitality and leisure, and consumer products. He has worked 2. Formulate a strategy and road map with many large corporates and private equity clients. Develop a strategy and road map to address all the Contact identified gaps. EY teams can offer a range of services to Mayur Pau help with this, covering governance, financial reporting, IPO Leader Middle East and North Africa, Ernst & Young LLP performance improvement, IT and risk. Al Attar Business Tower, 28th Floor P.O. Box 9267, Sheikh Zayed Road 3. Appoint trusted advisors Dubai Advisors should be appointed to help deliver the program United Arab Emirates of improvement initiatives, and IPO specialists should be Telephone: +971 4 312 9446 enlisted to provide advice throughout. Mobile: +971 56 655 4034 Email: [email protected] How EY teams can help with your IPO planning EY IPO leaders’ insights Europe, Middle East, India and Africa | 55 For decades, EY has been guiding high-growth companies and business leaders safely through the IPO process. Many of these have gone on to become major global organizations. EY teams advise ambitious organizations around the world and helps equip them for IPO success. As trusted business advisors, we guide companies from start to completion, strategically positioning businesses to achieve their goals over short windows of opportunity and prepare companies for their next chapter in the public eye. EY‘s Guide to going public — Are you ready? We are.
IPO planning and plan B options Pulling it all together How can a project management office lead to a smoother IPO? René Coenradie IPO processes involve many different work Core tasks for an IPO PMO streams and the input of multiple internal and external experts, such as management, • Drive the IPO process and maintain a focus on legal counsel, investment banks, auditors, tax priorities advisors, strategy consultants, investor relations consultants, financial reporting experts, • Act as a gatekeeper to minimize business employee benefit consultants, transaction disruptions support advisors and environmental advisors. • Monitor deadline attainment IPO processes are very time-sensitive, so high- quality project management is essential. And • Escalate decisions, risks and issues to rapid changes are often needed, so it is vital to management or the steering committee remain flexible. Setting up the PMO To ensure effective IPO project management, it is important to have an IPO project management To set up an effective PMO, you must: office (PMO). • Establish and document key IPO goals and Core tasks for an IPO PMO principles, including project scope, time lines and decision-making processes Management • Define key responsibilities for work stream Investment PMO External leaders, the PMO, leadership teams, the banks advisors steering committee and other sponsors Progress Project • Create a stakeholder matrix, outlining key reporting and decisions sponsors’ involvement and the activities they and issue need to carry out, to ensure appropriate timetable resolution engagement management • Ensure the quality of the IPO process by 56 | EY IPO leaders’ insights Europe, Middle East, India and Africa implementing templates for the following: 1. The process for work stream, program and executive reporting, including creating a management dashboard (e.g., status reporting) 2. The process for the review, sign off and distribution of project communications and deliverables 3. The process for managing project costs, including implementation of cost tracking tools. 4. The process for submitting, evaluating and agreeing changes to project scope, costs or time lines Contents
Pulling it all together Work stream Objective Strategy and business plan • Strategy confirmation Restructuring and • Implementation of new corporate reorganization structure and performance improvement Documentation and • Regulated documentation and marketing assurances • Marketing and fund-raising Financial reporting systems • Financial reporting and controls • Financial controls • Financial accounting • Information technology • Preparation of long- and short-term forecasting • Coordination of accountants, tax advisors and actuaries Governance • Establishment of committees and procedures “IPO processes are Legal • Coordination of legal due diligence very time-sensitive, so high-quality project • Collation of internal legal documents management is essential. and provision of support for other work streams Financial PR • Key messages and consistency Acquisition strategy • Completion and integration Tax structuring • Tax rate management and exit structuring Incentive plans • Design and implementation Work streams that can be carried out by a PMO as part of an IPO process. The planning process must ensure the clear identification, for About the author each work stream, of the time, resources, dependencies and detailed activities needed to achieve key milestones. René Coenradie is a partner responsible for Transaction Support Services in the Netherlands, Ernst & Young LLP. He is also Leader Once you start operating the PMO, you will need to: of the IPO Center of Excellence in the Netherlands and Belgium. His areas of knowledge include advising clients on IPOs and other • Identify internal and external resources to support it, as well stock exchange-related matters. He has led teams in a variety of as individual work streams transactions, covering pre-acquisition due diligence, mergers, exit and IPO readiness assessments, stock exchange admission and • Prepare meeting schedules and reporting time lines vendor due diligence. René has been a partner at Ernst & Young • Organize meetings LLP for 20 years, and has over 30 years’ experience in assurance • Conduct status reporting and transaction advisory services. • Communicate PMO processes and distribute templates • Solve problems Contact The following are examples of work streams that can be René Coenradie carried out by a PMO as part of an IPO process. IPO Leader Belgium and the Netherlands, Ernst & Young LLP The EY IPO leaders have extensive, proven experience running Boompjes 258 PMOs for IPO processes and advising companies on setting up 3011 XZ Rotterdam effective PMOs. Netherlands Telephone: +31 88 407 8777 Mobile: +31 6 2125 1453 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa | 57
IPO planning and plan B options Getting the facts straight How can an IPO fact book help companies carry out a dual-track process? Thomas Embretsen Any company carrying out an IPO must collect and has been subject to proper review by and deploy a great amount of data. management, and perhaps also the auditors. This single source usually takes the form of This is needed for important documents, a fact book. Its content must be designed to including prospectuses and marketing material, meet the company’s specific needs, based on its and responses to information requests from sector and performance. lawyers, investment bankers and the auditors carrying out due diligence. Preparing a high-quality fact book To ensure consistency and efficiency in this The financial part of an IPO fact book should process, it can help to compile an IPO fact be prepared in an integrated model, e.g., a book — a single collection of consistent financial Microsoft Excel workbook. The content should and nonfinancial data. be prepared based on the list of financial information requests from the different work Key decisions streams involved in the (dual-track) IPO process. An important part of the IPO readiness process When populating the fact book, all information is the establishment of the company’s equity entered should be reconciled to other story. This must be supported by historical information in the fact book. All financial financial information, demonstrating its information should (where applicable) be underlying trends and building a bridge to reconcilable with the audited profit and loss management’s business plan. When the equity statement, balance sheet and cash flow story is established, the company should decide schedules. Information sources should be listed which KPIs to measure and monitor. These so that auditors, lawyers and others needing to decisions should be reflected in its financial verify the information can do so more easily, reporting in annual and interim accounts, and in with minimal help from management. its presentations and other communications to the market. An IPO fact book is often a joint effort from management and advisors, but it can be A complex process beneficial to have a single person responsible for coordinating the input and following up In a dual-track IPO, the owners pursue different questions and requests from the various routes to exit in parallel. These can include work streams. an IPO or a trade sale to a strategic industrial investor or a private equity investor. Each route In a dual-track process, the parties and potential presents its own risks and opportunities. investors involved in the different exit routes will have a lot of common information needs. As a Dual-track processes often involve strict single source of high-quality information, an IPO timetables and highly complex tasks that are fact book can serve these needs. difficult to coordinate. In this situation, it is of great importance to have a single source of information and to make sure this is consistent 58 | EY IPO leaders’ insights Europe, Middle East, India and Africa Contents
Getting the facts straight About the author Thomas Embretsen is an EY Financial Accounting Advisory Services partner and the IPO Leader for Norway, Ernst & Young LLP. He has more than 16 years’ experience serving listed companies, large private companies and multinational clients. He assisted a number of companies in the technology sector as they bring new business models to new markets. Thomas has extensive experience implementing IFRS, carrying out due diligence assignments and advising on mergers and restructuring. And he has assisted a number of Norwegian companies with their listing on the Oslo Stock Exchange. Contact Thomas Embretsen IPO Leader Norway, Ernst & Young LLP Dronning Eufemias gate 6 P.O. Box 20, Oslo Atrium 0051 Oslo Norway Telephone: +47 917 48 946 Email: [email protected] “In a dual-track IPO, the owners pursue different routes to exit in parallel, e.g., an IPO or a trade sale to a strategic industrial investor. EY IPO leaders’ insights Europe, Middle East, India and Africa | 59
IPO planning and plan B options Covering both exits Why is vendor due diligence crucial to a dual-track process? Daniel Mair In today’s volatile capital markets environment, Running an exit readiness diagnostic it is essential to get the timing of an IPO right. However, the process’ considerable length Similar to the IPO readiness diagnostic means it is hard to predict whether the IPO will carried out as part of the IPO process, an exit coincide with favorable market conditions. readiness diagnostic is a necessary first step to being fully prepared for plan B. Key areas For this reason, it is strongly advisable to plan of the diagnostic include a commercial and and execute a dual-track strategy — in other growth strategy; operational effectiveness; words, to be fully prepared for a trade sale as structural considerations; financial, tax and plan B to the IPO. And a key success factor for legal information requirements; and last, but not a dual-track strategy is value-driven vendor due least, the effective and efficient preparation of a diligence (VDD). trade sale process. The challenges of dual-track due diligence The results of the exit readiness diagnostic will enable the creation of a detailed plan B and The trade sale strategy’s key participants are form the foundation of a value-driven, robust largely the same as those for an IPO: exiting and independent review of the business — shareholders, management and the investment commissioned by the vendor, and relied on by bank, legal, commercial, tax and accounting competing bidders and lending banks. advisors, and the company’s external auditor, and it is crucially important that they work The value of VDD effectively as a team. Through VDD, all the questions likely to arise Despite numerous overlaps with the IPO equity from different buyer due diligence processes will story, a different perspective is needed to be answered at a time when the process is still develop the commercial proposition for the trade under the vendor’s full control. This will result in sale. This is because capital market investors a sales process where surprises remain limited and potential buyers need different types and and the vendor can run the process efficiently detail of information. and create the highest possible value on exit. Depending on the type of business being sold, EY is well placed to help with the VDD process, both private equity investors and strategic and our experience and credentials can help you investors interested in combining the business get the most out of a dual-track strategy. with their own may be potential buyers. This means that, to prepare for all the potential perspectives investors might take when performing buy-side due diligence, the VDD process must consider the different information needs of these two investor groups. 60 | EY IPO leaders’ insights Europe, Middle East, India and Africa Contents
Getting the facts straight About the author “A key success factor for a dual- Daniel Mair is a partner in Transaction Advisory track strategy is value-driven Services Restructuring Practice and IPO vendor due diligence (VDD). Leader for Germany, Switzerland and Austria, Ernst & Young LLP. His professional areas include managing restructuring projects, buy- and sell-side transactions services projects, buy- and sell-side nonperforming loan portfolio projects, year-end audits of technology, communications and entertainment clients, and audit and advisory services for publicly listed companies. Daniel received his federal appointment as Wirtschaftsprüfer (the German equivalent of Certified Public Accountant) in 2000. He has significant experience in the real estate, financial services and technology, communications and entertainment sectors. Contact Daniel Mair IPO Leader Germany, Switzerland and Austria, Ernst & Young LLP Mergenthalerallee 3–5 65760 Eschborn Germany Telephone: +49 6196 996 24703 Mobile: +49 160 939 24703 Email: [email protected] EY IPO leaders’ insights Europe, Middle East, India and Africa | 61
IPO planning and plan B options Digitizing diligence Could a virtual data room smooth your IPO process? Pramit V. Nathoo With an increasing number of transactions • The audit trail function of a VDR allows for the taking place across borders, transactors are tracking of documents accessed by specific beginning to consider different ways to make users, and allows sellers to monitor and profile the dealmaking process more efficient. Working users. across different countries with different technologies and the unavailability of hard-copy • They are renowned for their security features, documents can add up to a frustrating deal such as access controls, encryption protocols experience, protracted timetables and value and document restriction capabilities. erosion. These problems can all be avoided if the process is carried out online using a virtual data • A VDR solution can attract more bidders to room (VDR). the M&A process, which may result in a more favorable purchase price for the seller. What is a VDR? The challenges of using a VDR A VDR is an online repository used for storing, disseminating and monitoring the use of • Because full reliance is placed on the internet, documents and other sensitive information. all parties need adequate bandwidth. VDRs are mainly used to facilitate the due diligence process during an IPO, M&A, • All documents must be available electronically. private equity or venture capital transaction. Information can be uploaded and stored in • It can be time-consuming to upload large many different file formats and can be accessed documents. from anywhere in the world with an internet connection. • There is no guarantee that the most sensitive documents cannot be copied by, for example, The benefits of VDRs using the screen print function, photographing the screen or copying information down. • They can be securely, conveniently and quickly accessed from anywhere, any time. Irrespective of whether a VDR or physical data room is used, the quality of the data it contains • They remove the need to tie up physical space is absolutely critical, as are timely populating for weeks on end. of the data room and a prompt response to enquiries. Poor-quality, poorly organized data • They increase the speed and efficiency of the (virtual or physical) can erode underlying dealmaking process. confidence and, potentially, value. • They enable a larger number of interested parties to access data. • It is possible to restrict the printing and downloading of certain sensitive documents to selected users. 62 | EY IPO leaders’ insights Europe, Middle East, India and Africa Contents
Digitizing diligence “A VDR is an online repository used for storing, disseminating and monitoring the use of documents and other sensitive information. How EY teams can help with your VDR About the author Pramit V. Nathoo is an Assurance partner, Capital Markets and Preparation is crucial. EY has provided a range of services to IPO Leader for Africa, Ernst & Young LLP. many international clients to help them project manage VDRs. We can help identify a global leading VDR provider and provide His areas of knowledge include coordinating and executing a number of services to help enable companies to optimize complex cross-border capital markets transactions including debt their VDR structure, including: and equity listings. • Preparing a suitable process strategy He is knowledgeable in assurance and reporting accountant services to cross border listed clients for the last 15 years, • Helping list information needed and allocating serving major clients in the mining and telecommunications responsibilities for document collation sectors. • Structuring the data room index Contact Pramit V. Nathoo • Helping to populate the VDR IPO Leader Africa, Ernst & Young LLP • Following up with information for owners to provide 102 Rivonia Road documents and documentation Sandton Johannesburg, Gauteng — 2194 • Providing management with continuous updates on data South Africa room status Telephone: +27 11 772 5263 • Creating user access profiles Mobile +27 83 600 5659 Email: [email protected] • Gathering Q&A from the data room and referencing questions to specific documents • Providing relevant questions to designated information owners • Uploading answers or information to the relevant data room section • Providing day-to-day project management and monitoring VDR activity EY IPO leaders’ insights Europe, Middle East, India and Africa | 63
IPO planning and plan B options Alternative exits Why should you run a multitrack process? Peter Wells “How can I successfully exit my business?” This Preparing a sale to a financial investor question is asked by entrepreneurs across the globe. The answer is relatively simple: keep your For a sale to a financial investor, such as a private options open, be realistic with pricing and be equity fund, it is important to provide far more prepared for anything. information on the commercial and operational aspects of the business than for a trade sale. This The challenges of an IPO is because these investors will not be as familiar with the business as strategic investors. For entrepreneurs, an IPO will often be the preferred exit plan because it provides an Financial investors will expect a high degree elegant way to step away from the business of detail on trends in revenues, gross margin, while converting part of their stock into EBITDA margin, capital expenditure and working cash. However, to list successfully, two major capital requirements. They will also want to challenges must be overcome: understand the business plan fully (and the link to historic performance achieved) and be sure • Preparing the company: this is time- management has the skills and motivation to consuming, complex and costly, and there are execute it. plenty of obstacles. The common requirements • Getting the timing right: many companies make all the right preparation then find the IPO These three processes — IPO, trade sale and sale window has closed just as they are ready to list. to a financial investor — have unique features. But they also have common requirements, which If an IPO is so difficult — with factors beyond can make a multitrack process more efficient. the entrepreneur’s control — is it really worth pursuing? The answer is yes, but sellers should One is the equity story. Any investor — whether plan other exit routes in parallel. Typical strategic, financial or retail — will want to alternatives will be a trade sale to a strategic understand why they should invest in the investor or a sale to a financial investor. business. For example, is the company offering growth or yield? Is future growth going to be Preparing for a trade sale organic or via acquisitions? For a trade sale, it is critical for sellers to look A second shared requirement is the financial at the business from the strategic investors’ information presented. In any type of exit, there perspective: how will it affect their market must be one core set of data prepared on an and competitive position? What revenue or adjusted basis, in order to present the business cost synergies will they achieve? How can it be in a consistent and comparable way. effectively integrated? The key to a successful sale is to provide sufficient information to enable strategic bidders to understand what the combined business will look like (and be valued at), so that their bid can reflect the incremental value being created. 64 | EY IPO leaders’ insights Europe, Middle East, India and Africa Contents
Alternative exits How EY teams can help you run a “If an IPO is so difficult – with multitrack process factors beyond the entrepreneur’s EY has a wealth of experience successfully control – is it really worth advising companies on multitrack exit pursuing? processes. We can provide all the services entrepreneurs need to assess strategic options EY IPO leaders’ insights Europe, Middle East, India and Africa | 65 and IPO and exit readiness. We can help deliver performance improvements prior to the exit. And we can advise on all aspects of any type of exit — including alternatives that may not have been considered, such as a dividend recapitalization, bond offering or the forming of a strategic alliance. About the author Peter Wells is a partner and the IPO Leader for the Czech Republic, Slovakia, Hungary, Serbia, Croatia and Slovenia, Ernst & Young LLP. He is responsible for Transaction Advisory Services in the Czech Republic and leads a team of 80+ transaction advisory professionals providing M&A, diligence, valuation, modeling, strategy and corporate finance services. Peter has supported many companies and entrepreneurs that have considered IPOs in Europe and the US. He has led hundreds of transaction advisory projects over the last 20 years helping corporate and private equity clients to buy and sell companies in Central & Eastern Europe. Contact Peter Wells IPO Leader Czech Republic, Slovakia, Hungary, Serbia, Croatia and Slovenia, Ernst & Young LLP Na Florenci 2116/15 Prague 110 00 Czech Republic Telephone: +420 225 335 254 Mobile: +420 603 577 898 Email: [email protected]
IPO planning and plan B options Six derisking strategies for IPO-bound companies How to derisk a company’s IPO and improve transaction certainty Dr. Martin Steinbach We live in uncertain times. US-China and Tough times require smart ideas and EU-China trade tensions, Brexit, trade tariffs, creativity in the IPO ecosystem and now a pandemic are creating short-term unpredictability and volatility in capital markets. To address today’s new realities, in addition to a This volatility is disrupting IPO processes in the classic IPO journey, entrepreneurs will want to critical placement phase. Some entrepreneurs simultaneously consider a multi-path strategy are failing to get the IPO proceeds they initially along one or more of the following routes: planned. Others are choosing to postpone or withdraw their IPOs at last minute, even after • Direct listing. This route foregoes the capital- long preparations and big investments in getting raising part of an IPO by converting existing IPO ready. employee and investor shares into stock that is then publicly listed on a stock exchange. As entrepreneurs navigate these uncharted circumstances, they need to be asking a • Safe IPO. A so called “safe” IPO strategy fundamental question: How can I derisk my separates the activities associated with raising company’s IPO and improve transaction capital and placement of shares (which can certainty? occur pre-IPO by a private placement or post- IPO by a secondary placement), and the stock New realities and periods of uncertainty market listing. challenge transaction opportunities • Indirect IPO. Entrepreneurs wanting a fast- High-speed trading systems and real-time track to market and the additional benefit of connectivity of liquidity centers around the world a strong cash position can consider a merger are the new reality. Additionally, in a globally with a listed Special Purpose Acquisition connected, borderless environment, external Corporation (SPAC). shocks and uncertainties from any number of directions can impact capital markets without • Reverse IPO. In a reverse IPO, the IPO regard for jurisdiction. candidate can merge with or acquire a listed company, thereby benefitting from listed status Statistical evidence shows that IPO activity has without having to complete the IPO process. a clear and negative correlation with short-term high levels of volatility. The reasons are clear. • Carveout IPO. Subsidiaries of parent During the critical IPO placement phase, positive companies that are already public can pursue market sentiment and stable markets better a carveout IPO, which combines a mirroring of support price determination and book building, shareholder bases with a direct listing process. without the volatility of peer group valuation measures. Investors also are more likely to meet • IPO bonds. In this scenario, IPO candidates on roadshows and to invest in an IPO. can use convertible bonds or bonds with equity options, combined with a direct listing of created shares at the IPO exercise date. 66 | EY IPO leaders’ insights Europe, Middle East, India and Africa Contents
Six derisking strategies for IPO-bound companies “Entrepreneurs need to challenge old ways when considering IPO derisking strategies. Entrepreneurs should assess these alternative strategies • How can we better leverage technology and new media to according to the needs of the company and stakeholders, as cost-effectively connect with investors, with the prospectus well as the respective regulation, especially as it relates to free as the central offering document? float requirements in the chosen IPO destination. To better prepare for the hot IPO placement phase, address potential • How can we improve IPO pricing by welcoming more opinion market risks and raise transaction certainty, entrepreneurs will leaders and introducing a more transparent price-model and want to ask themselves the following questions: determination process? • Have we selected the right lead bank(s) with an incentivized Five advantages continue to keep the IPO as a top commission scheme and motivated equity capital markets strategic option team committed to IPO derisking strategies? Despite the uncertain environment, entrepreneurs continue • Are we “already known”? Did we adequately educate to prepare for an IPO. Although there is a growing availability analysts and implement investor feedback from pre- of private capital, many companies still value the top five marketing, pre-sounding and pilot-fishing roadshows? advantages that an IPO can best deliver: 1. Public capital markets are still the deepest pool of liquidity • Have we reached out and received hard- and soft- commitments of cornerstone- and anchor- investors with a daily valuation. supporting the IPO orderbook? 2. There is a higher brand recognition opportunity in the • Does the IPO timing and equity story provide further value public spotlight, which can have positive spill-over effects creation potential post-IPO? on business growth. 3. A listing offers higher corporate governance oversight by • Are we IPO ready to meet capital market regulations and be regulators, analysts and multiple investors. flexible enough to catch narrower, shorter-notice IPO windows 4. Being listed provides companies direct market access with regard to prospectus-content and -filing process? and the opportunity to be a part of the capital market ecosystem. • Is there a plan B to meet funding needs (cross-overs, bonds 5. Companies gain greater independence with an additional, or private equity) for further growth and to bridge for a new and diversified global investor base. second IPO approach? Early and holistic preparation with the IPO team during the Entrepreneurs need to challenge old ways as they hot IPO placement phase is key in achieving flexibility and consider IPO derisking strategies transaction optionality. This includes a discussion about derisking IPO strategies case-by-case with your independent There is no one size fits all solution to derisk the listing trusted IPO advisor. process for IPO-bound companies. However, entrepreneurs can challenge traditional processes and the whole IPO ecosystem EY IPO leaders’ insights Europe, Middle East, India and Africa | 67 with better questions and new approaches to limit IPO timing and placement risks. Derisking questions may include: • How can we better approach the whole “public investors” base of an IPO, which in recent years has become more of a private placement among selected institutional investors in many markets?
IPO planning and plan B options Alternative route to market gains traction Is your business the right fit for a direct listing? Dr. Martin Steinbach Direct listings are not a recent development; However, a direct listing isn’t for everyone. To they have been around for decades in parts of put it bluntly, size matters. A direct listing can the world including Europe and Asia. But recent work well for large cap companies that already volatile and unpredictable markets have helped enjoy brand-name recognition and a significant to propel direct listings into the public eye. private market valuation. Raising capital is not a Attention has further gathered steam following primary objective for a business going the direct the recent announcement by the Securities and listing route; its priority is to facilitate trading in Exchange Commission of new rules to make it the company’s shares by gaining access to a liquid easier to conduct direct listings in the US. market, something that is much easier on a public platform. Once listed, as it further strengthens This heightened attention is good news for the brand and builds confidence in its equity investors and companies alike as a direct listing story, it has the option of taking the second step can provide an alternative strategic route to the of issuing new shares to raise further capital public markets. (which may provide foreign currency to help fuel M&A or other plans for expansion). Is your business the right fit for a direct listing? Weighing up the pros and cons Essentially, a direct listing of existing shares For those companies that do have the scale is a way to go public without the issuance of and confidence to follow this route, there are a new shares. It allows a company to access the number of advantages to a direct listing: public markets without some of the uncertainty that accompanies an IPO. While an IPO can be • The company avoids the sunk costs of IPO withdrawn or postponed at the last minute due readiness investments to a variety of factors, a direct listing offers a safe pathway to a main market presence, • There is substantially less commission to be especially during periods of uncertainty. It is paid to brokerage-based intermediaries commonly used for example where companies want to trade their shares on more than one • Existing investors will not have their holdings stock exchange or as part of a carve-out diluted as no new shares are issued transaction. However, there is inevitably a flipside. Potential challenges of a direct listing include: • Difficulty in managing the initial auction and trading price, although pre-marketing, a non- deal roadshow and initial analyst coverage can reduce this risk • Incentivizing investment banks required to manage a direct listing, as their fees will be lower 68 | EY IPO leaders’ insights Europe, Middle East, India and Africa Contents
Alternative route to market gains traction “Direct listings can represent a welcome alternative route to the public markets. And of course, a company pursuing a direct listing still needs to comply with the same regulations and ongoing obligations as one choosing an IPO. For example, in the EU issuers need a full prospectus and a minimum initial free float to ensure liquid trading. Depending on the market, the issuer may need a sponsor to admit the shares to trading. Good news for the capital markets Given the dwindling number of publicly listed companies and the rise of privately owned unicorns and decacorns, direct listings represent a welcome alternative route to the public markets. They provide company founders and employees with a mechanism for monetizing their stock options as well as offering financial sponsors and other investors an exit route. The recent rule changes in the US to facilitate direct listings is good news for the entrepreneurial funding system and the broader capital markets. It will be interesting to see how many companies consider this route in the coming months. EY IPO leaders’ insights Europe, Middle East, India and Africa | 69
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Life in the public eye Leading a company through an IPO can be an intense and emotional ride. How well placed are you to deal with new challenges a listing will bring? EY IPO leaders’ insights Europe, Middle East, India and Africa | 71
IPO planning and plan B options Organizing the interface with investors How can an effective IR function help organizations succeed with their IPO and beyond? Dr. Martin Steinbach To make the most of a business’s corporate Implementing an effective IR organization communications, the management board will need an effective financial communications For a company getting ready for an IPO, it will be organization and strategy. Financial critical to set up an effective IR function. And for communications — often managed by the investor many listed companies, there will be a need to relations (IR) function — are an important link improve the IR function, in order to support the between a company and its investors. And that low cost of capital and a higher share of liquidity link is especially important in challenging global in relation to its peer group, and also to mitigate capital markets. So it is no surprise that effective the risks involved in financial communications. financial communication with investors is a top- 10 priority for management teams and boards Effective communication relies on clear across the globe. processes and structures governing which information will be provided and how individual Our global survey Taking it to heart: exploring units should act together, through to final how investor relations is organized in companies disclosure. Key goals for the IR function will pre and post IPO reveals international leading include keeping existing shareholders satisfied practices and sets standards to help businesses by providing the right information on a timely better prepare or improve the internal basis, and attracting new investors in order to organization of their IR function. We surveyed ensure that the company’s shares are fairly 876 IR professionals from around the world to valued. And these goals must be achieved get to the heart of IR and learn about its role while maintaining regulatory compliance in the and strategy, and its connection to the board capital markets. and key departments. Our survey revealed that many IR professionals have a seat at the top table: 77% of companies have an IR representative attend board meetings. This position gives IR a crucial role to play in providing investor feedback to the board and in giving insights into the way the company is perceived in the market. But interdepartmental connectivity is also vital to the good internal organization of the IR function. 72 | EY IPO leaders’ insights Europe, Middle East, India and Africa Contents
Organizing the interface with investors Key IR considerations for CEOs and CFOs • Are all internal departments sufficiently aware of disclosure obligations and periods and regulatory changes? Are The CEO and the CFO are ultimately responsible for they supported by the IR calendar? Who monitors the IR the effectiveness of their company’s IR function. When function? implementing or improving the IR function, they will need to consider the following questions: • Is the equity story both attractive and up to date, reflecting the KPIs, segment reporting and business strategy? Is • What is the typical role of IR, its tasks and responsibilities? the organization meeting forecast expectations, based on And what is the nature of IR’s relationship with the board relevant analyst guidance? and other departments in the organization? An effective IR organization is as vital for companies preparing • Are there clear internal processes, reporting lines and for an IPO as it is for those already listed. To succeed in responsibilities in place to ensure regulatory compliance and globalized capital markets, a business must meet the needs to help maintain investors’ confidence? of international investors by ensuring regulatory compliance in its financial disclosures, fulfilling its promises and attaining • Can the organization match the best practices of its peer operational excellence. Effective internal organization of the IR group when responding to day-to-day investor requests? function is crucial to achieving this. Are the internal structures and organization appropriate? EY IPO leaders’ insights Europe, Middle East, India and Africa | 73
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EY IPO leaders’ insights Europe, Middle East, India and Africa | 75
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