Intro Video Transcript

The IPO Process From a CPO Perspective Brought to you by Illumeo learning Hello everyone, welcome to another in a continuing series of webinars brought to you by Illumeo. Our topic is the IPO Process, and it’s from a perspective of a Chief Financial Officer. My name is Al Cochran, and I have led offerings in four separate public companies plus four in my career. Aside from an overview of the IPO Process we hope to accomplish these objectives today: That the company recognise that the IPO is not a destination but it’s the beginning of a new journey, and determine whether or not this new journey is actually right for the organization does it fit in with our long term strategic plans and if the answer to those questions is ‘yes’ realize that this is your process and you can and should control it. The deck that we’re going to be using today contains a lot of detail, I don’t think we’ll be able to get to all of the items in the deck but it is to be made available to you for your use as a reference as you undertake your own IPO journey. So, let’s time in shall we. I’ve written an outline here that has us begin with consideration of whether the IPO does align with the Company’s overall strategic plan. Try to answer the question – “What is our objective?” Pre Planning • Who are the members of the team to conduct an IPO • What does it take to be successful • What does a typical schedule look like • How does the company prepare itself • Are there any cautions we need to be aware of in making communications during this process And then we’ll get into the process itself Everything from the Kick-off meeting to the road show and we’ll be using some terms in our analysis that might not be part of your everyday vocabulary but hopefully by the end of the presentation you’ll be more comfortable with these terms. The Process: - Kick-off Meeting - Underwriting Agreement - S-1 Registration Statement - Jobs Act/EGC’s - SEC Review Process - Overview - “Cheap Stock” Issues - Directed Share Program - Road Show - NASD Review Process So when we turn our attention to- What are our Objectives? Liquidity: Other ways to accomplish Often filing S-1 becomes a “for sale” sign When a company thinks of going public often at the top of the list is liquidity, whether that is to allow existing shareholders monetize some of their investment, whether it’s to raise additional capital, or whether it’s to pay down some debt and de-level the balance sheet, liquidity is at the top of the list. But there are other ways to accomplish this liquidity without suffering a dilution, selling the 25-30 percent of the company. That’s typical when a company goes public and becoming then a registrant and being a part of that forever reporting regime, and regulatory regime that goes along with being a public company. It’s also quite common for filing and registrations table to essentially be a for sale sign that’s posted on the company, and in fact if that’s what the company would have in mind, the investment bankers will talk about a dual process. Where you file a registration statement but then you reach out to some potential inquirers to indicate what you desires might be, and as I say it’s not un-common at all for a company to file a registration statement but be acquired in the process and the registration statement never become effective. Marketing/PR: - Raises profile of Company - Sets in motion a permanent communication protocol with Markets and SEC Surely you will recognize that being a public company raises the profile in many organizations so there’s Marketing and Public Relations advantage to being a public company but it does set in motion a permanent communication protocol with the Markets and with the SEC, that some might think would out-weigh the benefits of marketing and PRS specs that we get as part of being a public company. Currency: - Use equity for acquisitions - Share-based compensation programs If an organization has a significant part of its strategy including mergers and acquisition and having stock available to do these acquisitions or having a currency if you will, certainly something to think about in being a public company, and also, the share-based compensation programs have more value or more perceived value in the hands of the employees if they can look in the Wall Street Journal everyday and see what potential value their option would be if they were able to exercise and sell on that day. So that currency aspect is important. What is our Objective? Consider the cost: - Dilution - Initial cost- money and time and process can be a distraction - On-going cost of being a public company can be significant: Professional Fees, D&O Insurance, Investor Relations, etc But once we’ve determined that these are the right objectives, and it does meet our long term strategic plan. The company needs to consider the cost, now I mentioned the dilution, it’s typical for an IPO to involve sale of 25-30 percent of the company to the public whether that is primary shares or in some instances a portion of that may be from existing distant shareholders which is termed secondary shares. But the dilutive effect of doing an IPO is something the existing shareholders need to come to grips with. There’s a significant cost both in money and in time and the process of undertaking an IPO can be a significant distraction to senior leadership rather than being involved with the things that generate revenue and run the company, you often tied up with changing happy to glad and registration statements, so it can be a significant distraction and they need to come to grips with that as well. There’s the on-going cost of being a public company which can be significant. There are Professional Theories for attorneys, for accountants, there’s D&O Insurance, the cost of Investor Relations program, and it’s not uncommon at all for a company say with a hundred and fifty million in revenue to have those cost on the order of not even one percent of revenue. Another thing that would cost me to think about is the success factors both in getting an IPO completed and then being a successfully public traded company, and I think about it in these terms. Success Factors: - Runway (does our industry have substantial market opportunity?) - Technology/ Service (are our Company’s offerings sufficiently differentiated?) - Culture (is our culture one that can thrive in the public arena while continuing to serve our customers?) - Financial institution sponsorship First of all, does the industry have enough runway is there a substantial market opportunity for the company and its competitors to all succeed? Or the company’s technologies, services, products all in the offerings, all in the nature that can be sufficiently differentiated in the marketplace to attract investors initially and to keep the company well positioned against its competitors in the long term. Another thing I think about is culture, in a new public company it’s often the case that the management whether its middle management or senior management begins to kind of get focused on what the share price is rather than, “are we doing everything that we should to serve our customers?” It’s very tempting to do so but it’s important that the company maintain the focus on what got them public to start with, and that’s taking care of the business, taking care of the customers. You do have a new constituency of stakeholders that you need pay attention to but not at the expense of serving customers and driving what make the business successful. And finally, we’ll talk a bit about Financial Institution and Sponsorship. All this in the interest of the capital market’s people from the investment banks is important in getting you to the public arena and then it kind of shifts once you’re public, into the research side and being able to cultivate relationships with those research analysis is important, and you’ll be able to recognise the level of interest in these financial institutions as a project company. Your phone will ring people will want to come to talk to you about the business, about where you are in the market, they’ll bring their obligatory deal book and talk about where you might be in relation to other companies, and then you may even e invited to the investor conferences and to speak on the private company tracks. So, that kind of attention is significant and important and represents the part that you’ve got to have in order to put together a strong deal team to complete an IPO. But as I say builds up a bit once you become public and you’re then cultivating relationships with the analysts because you want their continued support now that they can put you in front of new potential investors after your public company.