Sometimes IPOs are wildly successful, doubling or tripling in value over the course of a few weeks. Others may flop, and be put in Wall Street’s penalty box. Recovering from a poorly executed IPO can take years. For even the most seasoned executives with experience in the public markets, proper preparation is necessary to ensure a successful public offering. Understanding reporting rules and regulations is only part of the challenge. How you position the company, and communicate targets and results is equally important. NetSuite recently hosted a webinar with Tim Dolan, managing partner at ICR, a strategic communication and advisory firm for public and pre-IPO companies. He outlined three key tips to avoid becoming a Wall Street casualty. Watch a replay of the webinar.
Market Volatility is Inevitable
IPO valuation ranges are high relative to industry norms, and thus it is imperative for companies contemplating entering public markets to assess how volatility will affect their offering. Since every company is different, the decision to make a move depends on what stage the company is at, the cash burn rate and the team’s overall objectives. IPO windows can open and close quickly. There is no ‘golden rule’ to follow when dealing with market volatility, however companies that are well prepared can act quickly when the window opens, and enter the markets at an optimal time. This means starting the IPO preparation process early enough so that the company already operates like a public company well before the funding event.
Establish Great Communications Channels
Communications are always an integral part of a business’ filing. How well a company does with public and investor relations, its positioning with sell/buy side analysts, and what metrics it provides all play a large factor in its success. For example, a company that doesn’t provide the metrics the street expects to hear will likely result in the stock being punished following their earnings announcement. Dolan recommends preparedness in communications; businesses should establish sell side relationships at least 12 months in advance of their planned IPO, and be rigorous about interviewing the sell side analysts, to get a sense for the markets. Understanding if analysts are interested and advocating for the company will provide a leg-up when it’s time to make the offering.
Keep up-to-date with relevant industry trends
Having a sense for industry trends can make a huge difference in how well companies can present and manage expectations – both from an overall market perspective and a PR/communications perspective. At the end of the day, the business needs a model that reflects reality, but the company also needs to think about how analysts will react to changes in the business – that’s why companies must build a certain degree of conservatism into their models. Under promising and over delivering will usually result in a greater market multiple.
NetSuite’s four-part webinar series on Going Public continues February 22nd with the auditor’s perspective – click here to reserve your spot to hear Conor Moore, Partner, Technology and Emerging Companies at KPMG cover accounting best practices, internal controls and pitfalls to avoid in order to make the transition from private to public less daunting.