MakovskyThursday, October 23, 2014
In its highly successful IPO, Alibaba Group Holding Limited, the China-based online and mobile commerce company, had it all. It had buzz leading up to the offering which likened the company to Amazon and eBay. It had a great story given its dominance of the Chinese marketplace. It has a charismatic founder and CEO. And it had strong financial performance and a stellar roster of Wall Street bankers leading the IPO. All of this resulted in a warm reception by investors.
Underlying the success of Alibaba’s IPO is the improvement in the US IPO market. According to Renaissance Capital, the year to date activity remains strong with 206 offerings, the most since 2000 and a 36% increase over last year. They also note that, while an uptick in volatility exiting the 3Q could threaten the IPO market’s current momentum, a packed pipeline of IPOs, helped by a record September for new filings (36), should set the stage for a very active fourth quarter in a record year.
Few companies will come to the market with the cachet of Alibaba, but those considering an IPO need to consider a number of factors to facilitate the completion of a successful IPO:
- Begin planning at least two years in advance and make sure your accounting systems and procedures are in place and public-company ready. Ideally your management team and board of directors should include individuals who have been through the process before. Well in advance of the offering, your company will want to start acting like it’s already public..
- Start building a strong industry profile. Given SEC regulations and quiet period restrictions, companies planning to go public need to review their communications strategies well in advance of an IPO. Once a company announces its intention to go public and files a registration statement with the SEC, there will some restrictions concerning communications activities. However, the SEC generally allows companies to continue their established communications practices to support standard business activity.
- Start building relationships with investment bankers and check out those that have a track record in your industry and review the performance of their previous offering.
- Talk with institutional investors to get their perspectives on your industry and the companies they admire and why. These are informational meetings which will provide your management team with insights into the way “the Street” thinks.
- Begin to sharpen your corporate presentation as this will be the most essential element in your road show meetings with potential investors. Enlist the aid of media and presentation trainers to hone your management’s skills. Know the questions in advance. If your company is pre-revenue stage, you will most likely be asked questions about the balance sheet, cash and burn rates, as well as monetization and your path to profitability.
- Be aware of the hot issues. Intellectual property, Corporate Social Responsibility, executive compensation (e.g., valuing “cheap stock” seems to be attracting attention these days), and accounting pronouncements (e.g., revenue recognition is always interesting) are but a few areas of concern.
- Get your corporate policies in order. Often private companies don’t need to focus on this. We’re in the age of transparency and the more disclosure the better, particularly as it relates to compensation practices (make sure everything is documented and utilize outside experts if necessary).
- Maintain a watchful eye on the risk factors. You want to imagine putting as many bullet holes as you can into your company as way of avoiding potential litigation later on. (Many attorneys live by the expression: “Pay me now or pay me later.”)
- Look at the alternatives. Private equity or a strategic merger might be a better and more efficient way to go.
- Prepare for life in the never-ending spotlight, as your company will be put under the microscope by the investment community.
Following the offering, management will be able to once again focus on building the business. However, public ownership demands that business growth be matched by a strong after-market support for the company’s shares through a consistently-orchestrated investor relations program.
– John McInerney