Ten Factors to Consider Prior to an Initial Public Offering
An Initial Public Offering is no small endeavor, but the financial rewards can be significant. As with any business transaction it is best to go in with eyes wide open so as to avoid common misconceptions and mistakes. There are approximately ten key points to understand before undertaking an Initial Public Offering.
1. Legal Counsel
Depending on the size of your company, it is usually more cost effective to outsource legal counsel. If your legal needs are sporadic or even ongoing, motivated and effective legal counsel can be retained for approximately 50% of what is costs to employ in-house counsel. It goes without saying that with the advent of the Sarbanes-Oxley Act it is now more important than ever to stay current with SEC rules and regulations. Companies with even the best of intentions can find themselves in violation of current rules and requirements without even knowing it.
It is critical that companies seeking to achieve public status develop a relationship with a securities attorney capable of guiding them through the complex process of launching an Initial Public Offering. Remember, legal counsel communicates directly with the Securities and Exchange Commission as the company's liaison throughout the registration process and thereafter should any problems arise while the stock is trading.
Corporate Counsel Must Possess:
- Extensive experience with both public and private companies.
- A history of communicating with the SEC and NASD.
- A strong working knowledge of accounting procedures.
- Established working relationships throughout the investment banking community.
- At least ten years experience.
2. Management
Closely examine your company's management team before considering holding your enterprise up to public scrutiny. This may be a time to trim 'dead wood" and ad that star player you've been considering. Upon taking your company public investors as well as potential investment banks will want to see biographies on most if not all of your management team. Put your best foot forward and show the world you've got the personnel resources to dominate your chosen field.
If potential investment banks don't believe investors will be sparked by your corporate management team, it may be difficult to attract interest from underwriters. Of course, small companies seeking to raise a limited amount of funds at the outset may consider a direct public offering where, with the assistance of able securities counsel, they undertake to make an offering directly to the public without the assistance of one or more underwriters.
3. Selecting Your IPO Team
An IPO is the end-product of the collective efforts of a very skilled group of specialists: investment bankers or brokers, legal counsel, independent financial auditors, and stock transfer agents. As with any other scenario, always shop for talent and be sure to have the assistance of experienced legal counsel who knows the right questions to ask. In many cases, an experienced securities attorney will already have strong working relationships with the people you will need to work on your behalf, including investment bankers and the Securities and Exchange Commission. Remember, your legal counsel is typically your point person; your investment banker is strictly your vehicle.
4. Marketing
Investors are less likely to rally to your cause unless they see you have the ability to expand your client or consumer base throughout good economic times as well as bad. It is essential for investors to know that you can weather the storm and prevail amongst your competitors, creating and maintaining a consistent growth rate so that they will hold onto your stock as opposed to dumping it at the first sign of profit.
A strong marketing effort tells the world that you are aggressive in marketing your company and your primary business expertise is highly focused and developed. Unless you can show the investment public that you can generate new business on an ongoing basis, you run the risk of attracting investors with a short-tem perspective on your company. This can result in a stock that does
well initially, but stumbles at the first hurdle and never recovers. Any successful Initial Public Offering is built on the participation of a solid investor base, one that is prepared to stay on board for the long haul.
5. Disclosure and Financial Reporting
Quality companies have always respected the fact that in order to prosper over the long haul you must respect and protect your investor's capital with the highest degree of care Investors have more options than ever before as to where to position their capital. Should they select to invest in your company you have a moral, ethical and legal obligation to provide them with the most accurate depiction of your financial situation.
Quarterly and annual reports are the most obvious accounting responsibilities. However, once you have gone public there are also proxies to prepare for shareholder meetings. Although at first this level of accounting may seem intimidating it is important to remember that it's all been done before. In business there is rarely such a thing as a unique situation. The trick is finding the right accounting firm for your particular scenario.
The best way to go about this is probably the most obvious. Work with your legal counsel to establish an accounting and reporting discipline and then stick to it.
6. Expect the Unexpected
Taking a company public can take anywhere from six months to two years depending on a variety of factors. There are also several different ways to get where you're going including reverse mergers, filing traditional registration statements and in
certain
states, a Rule 504 public offering
is a viable option.
There will be interrogatories by the Securities and Exchange Commission (SEC), personnel changes, business plans to be created, and
other issues to handle during the IPO process. Nonetheless,
your company must still function successfully in the interim. The benefits
of being a public company
can
however
be tremendous
but, as with
anything else, If it was easy, everyone would do it.
This makes it even more imperative to take into consideration the fact your legal counsel is the cornerstone
of your quest to become a public company. The hurdles that must be traversed are complex but the right securities attorney can spell the difference between success and failure.
7. Business Model
The Road Show is an opportunity for companies that are going public to show their wares. Meetings and presentations are held at brokerage firms, industry conferences and investment seminars. If the company's business model is not cohesive, attendees will not rally to the cause.
Remember, investors as well as brokers have thousands of options these days and Initial Public Offerings do not sell themselves. If brokers do not believe in your
company's
concept, they are not going to put their valued clients into the offering. The company's business plan must demonstrate the ability to create and sustain growth as well as present viable contingencies in the event that things do not go as planned.
When meeting portfolio managers and investors, for example, you have to be able to justify reasons for them to invest in your company. This is done by noting the current market conditions, showing how and where your company's product or service fits into a particular industry in the market, and describing past, present and anticipated successes.
The most advisable way to do this is to present your company's business model. Demonstrate focus and flexibility and a strong working knowledge of product marketing. Show them that the company has the ability to generate revenues on a variety of fronts. In summary, be sure the business model makes, possesses a strong factual foundation and is not based on lofty projections.
8. Name Recognition
Name recognition is king from a marketing standpoint. As unbelievable as it may seem, even this aspect of undertaking an Initial Public Offering has its drawbacks as well.
Name recognition can attract more qualified employees as well as assist the company going public to raise the capital needed to complete the offering. Name recognition can bolster growth, secure publicity in the news media and spark a myriad of cross-promotional opportunities with key players in related businesses.
On the downside, it can also make a company more vulnerable to public scrutiny in the event a financial forecast is missed and the share price declines. The investment public will not tolerate any negative news (unfounded or not) that becomes attached to your company's name. In the same fashion that product manufacturers are quick to dissolve relationships with celebrity sponsors at the first hint of scandal, investors and brokers will do the same to a company being dragged through the mud in the media. In some unfortunate cases, rumors are enough to cause a share price to plummet, undoing months or even years of hard work.
Companies preparing to go public must have strong public relations and investor relations machines in place. Perception is everything, especially when attempting to maintain the faith and devotion of a widespread investor base. Be sure that management is advised to never give statements to the media without clearing the language with legal counsel first. Not only can a misstatement send investors running for cover, but it can also bring down sanctions by the Securities and Exchange Commission (SEC) in the event that the misstatement causes a rally in share price or induces buying from the general public.
9. Plan for Unexpected Costs
Rest assured that operational expenses will increase once a private company goes public. Updating investors costs money; so does media relations, advertising and legal,
especially an able and experienced securities attorney
. Company principals should clearly understand that launching an Initial Public Offering may not equate to immediate revenues but it will most certainly result in increased operating expense.
The company's cash reserves should be able to withstand this initial outlay without detrimentally effecting the company's reporting figures or "numbers." Principals should take a long, hard look at the company's projected budget, plan for every possible miscellaneous one-time expense and then buffer that figure to compensate for unforeseen costs that invariably arise.
10. Consult with a Securities Attorney
The IPO is just a transaction, but a large transaction. Jean-Pierre & Jean-Pierre, LLC can provide numerous options in regards to company financing. If indeed an Initial Public offering is the way to go, our team will work closely with company management to create and implement the best possible strategy for taking your company public in a timely and cost-effective manner.
Over the years our firm has developed key relationships with established professionals in the investment banking community including underwriters, investor relations experts, marketing and corporate image entities and stock promotion companies.
Our securities professionals
are accustomed to preparing Registration Statements in a timely fashion while communicating with key personnel at the Securities and Exchange Commission. These relationships allow us to move aggressively on behalf of our clientele when bringing an exciting new issue to the market. |
