In 2020, the number of IPOs reached 480, up from 233 in 2019, and this uptick in public offerings continues to rise in 2021. In fact, as of March 2021, U.S. markets recorded nearly 400 IPOs, a significant increase from the 37 IPOs recorded in the same period in 2020. As low interest rates and investor enthusiasm for IPOs, especially SPACs, continue in 2021, more and more companies are considering whether to take their company public, or not.
IPOs can be an attractive and strategic route to funding growth and accessing liquidity, but it’s not a short-term solution. A successful IPO means implementing wide-reaching change across your organization, right down to your corporate culture. These changes don’t end after your IPO either; there is plenty of work to be done afterward to ensure that your organization is able to successfully operate as a public company for years to come.
To help companies prepare for this transition, here is a list of considerations and recommendations for companies going through the IPO process.
How can companies prepare for post-IPO life?
Start planning before your company initiates an IPO and in a way that will serve you past the media fanfare and speaks directly to investors. Start by running an internal quarterly earnings process exactly as you would once your company has gone public. While this may seem obvious, you’d be shocked at how few companies do it prior to becoming a public company. The reality is that it’s not just a matter of scaling and adapting what you’re already doing - the earnings process involves a lot of practice and has a lot of hitches that need to be ironed out before you can successfully navigate it. For example, you’ll need to be prepared to explain your financial statements and performance. Don’t assume those numbers are self-evident and all your investor base are savvy financial professionals. The recent increase in retail investor interest in the capital markets is driving trading volume and stock prices. You’ll want to consider the needs of this group when communicating your story.
How can your company adjust to the increase in media attention?
Private companies are often not aware of just how much scrutiny they’ll face once going public. Communication across teams and departments is incredibly important since your corporate performance will be in the media spotlight, on the news, and all over the web. The market is an incredibly fast-moving environment and it demands fast responses to investor questions and requests. There are constant changes in the capital market and corporate governance regulations, and so newly listed companies really need high-quality financial communication to provide clear insight and adapt to these changes. Reporters, staff writers, offshore content developers, and artificial intelligence (AI) technologies will be reviewing and analyzing your communications. It's important to develop your content for these various audiences to ensure your message is received in a consistent and accurate manner.
Environmental, Social and Corporate Governance (ESG) is also going to be important for 2021 and beyond. Tougher enforcement and other ESG-related reforms are among the items said to be on the agenda for Gary Gensler, President Joe Biden’s pick to lead the SEC. Specifically, there are going to be changes coming that could require public companies to disclose climate risks and greenhouse gas emissions. Again, keep the individual investor in mind as more and more are making investment decisions based on a company’s track record and how well they address and react to ESG issues.
How can a company maintain momentum following an IPO?
While the IPO process will create a lot of excitement about your company in the media and among investors, that buzz will fade over time unless you work to maintain the market’s interest. Having an investor relations professional (IRO) or agency who works well with your bankers, knows about your industry, and is familiar with potential investors is an important component of maintaining success. Your IRO will help build out your post-IPO strategy and guide communications to stakeholders and the media throughout the process and into the future. Whoever you choose for your company’s IR function needs to cultivate relationships with key analysts, helping them to understand your business, keeping in mind that it really takes proactive and strategic planning to build those strong relationships.
Also, allow data to be your friend when trying to understand who is demonstrating interest in the company through their direct and indirect actions. Analyzing recent and historical data of who's attended earnings calls, investor days, or visited your investor relations website or press releases can add value to your investor targeting efforts or provide an early alert to potential activist interest.
How can IROs create a long-term growth plan post-IPO?
IROs need to work with the C-suite to ensure that the company is either meeting or exceeding the expectations they set out at the time of their IPO. This will demonstrate to investors that they’re successfully executing their business plan, consistently meeting financial targets, attracting the right investors, and ensuring regulatory compliance. To set yourself up for success, define the key metrics that will continue to drive the business forward after the IPO. Monitor them closely and use them to create a framework for analysis, helping to guide any discussions around performance. It’s also important to create and nurture an ongoing dialogue with the investment community and key figures in financial media, which will help you to attract equity research coverage.
While your IPO may feel like the most important transaction for your company, it’s just one of many milestones of being a strong player in the market. Maintaining that pre-IPO momentum means taking proactive measures to establish share price stabilization and active trading support, as well as targeting a strong investor mix and long-term pipeline. Learn more about effectively targeting the right investors by watching our on-demand webinar, How to Navigate the New Normal for Investor Targeting.
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