article for Deloitte
April 13, 2010
From drought to renewal: IPOs set to flourish in 2010
Private equity investors may not have expected a robust IPO market in 2009 – but they certainly didn't anticipate a year as lifeless as it was. With only 29 Canadian IPOs for the year, the market barely showed a pulse. Falling markets and a lack of buyer confidence contributed to near drought-like conditions. While there were attempts to gain solid footing, the public markets saw only limited action.
But now there is spring in the market's step as a number of indications point to a rising IPO market for 2010. Reduced volatility, increased liquidity and a rebounding market have made for a more hospitable environment for public offerings.
While the outlook has improved, going public remains a long, arduous and complex process. In more “traditional” market settings, the process can take as long as 18 to 24 months. But today’s markets are anything but traditional. Thanks to shifting fundamentals, a window of opportunity has now opened that makes it possible for investors to rely on IPOs as an effective exit strategy. The twist? To take advantage of this window, companies need to compress the IPO process into a shorter time frame.
Despite this compressed process, you need to rigorously execute all the stages for taking a company public. To avoid the risks associated with these accelerated timelines, it is essential for private equity firms and their portfolio companies to lay the groundwork by ensuring they are technically ready for an IPO and by maximizing the company's valuation.
Are you ready for an IPO?
In getting ready for the IPO process, a company must take a good hard look at itself. That’s because the level of scrutiny companies undergo during the IPO process − and then as public entities − will be far more extensive than any they experienced previously.
To achieve technical preparedness, companies must go beyond an internal assessment as well. They must take issues such as the offering jurisdiction into account and assemble a huge range of critical documents, including income statements for three years and a balance sheet covering two years. They must reconcile their financial statements with GAAP and file with the required regulatory commissions.
All of these tasks create a complex and heavy workload. Underestimating the time requirements, complexity and workload can lead to spiraling costs, making it essential to work with professionals who have IPO experience so you can minimize surprises and improve the odds of success.
Getting to maximum value
Beyond being prepared from a technical standpoint, companies considering IPOs must take steps in advance to maximize their valuation. This begins by gaining a clear understanding of your portfolio companies’ current value, as well as their weaknesses and strengths, so you can pinpoint areas where value can be increased. In addition to benchmarking each company against its peers, this exercise typically involves engaging in performance enhancement initiatives in an attempt to help companies bridge the gap between their present value and your desired valuation.
With the window of opportunity for IPOs open for an uncertain length of time, speed to market is essential. It is vital to prepare early to get technically ready and plan a solid exit strategy to ensure that value is not left on the table.
How a team of specialists addressed key issues and found solutions to help these companies successfully prepare for their IPOs: