Critical Success Factors for an IPO – Lessons from the C-Suite

Financial Profiles recently hosted an event for companies contemplating going public. One of the highlights was a panel of public company executives who shared their candid and firsthand experiences about IPO readiness.

Wendy Markus Webb, Managing Director of Tennenbaum Capital Partners and Chief Investor Relations Officer of TCP Capital Corp. (Nasdaq: TCPC)

Charles Hilliard, former President and CFO of Demand Media, Inc. (NYSE: DMD)

James G. Jackson, CFO of BreitBurn Energy Partners L.P. (Nasdaq: BBEP)

The panelists all agreed that in today’s market, it is far more difficult, detailed and time consuming to successfully complete an IPO than ever before, and that preparing for an IPO involves many unanticipated challenges. They also offered keen insights into the most critical success factors for an IPO, which are summarized below.

Make Sure you have a Well-Honed Corporate Story to Tell

“You’re basically telling a story – weaving a narrative about growth and the opportunity to create shareholder value in the future. Sit down with your management team and see if you can actually write on a piece of paper what your business strategy is and what your competitive strengths are. You have to have a strong sense of your key top three to five takeaways and be able to live up to those after the IPO. You must offer clarity about the shareholder value proposition and where your company stands relative to your competition. Think carefully about how investors will size up your company relative to other investment alternatives.”

Establish an Investor Relations Strategy/Program in Advance of Becoming Public

“Do you have a well-developed IR program ready to hit the ground running once the IPO has happened? Are you in position to be attentive to your newest constituents and demonstrate that you will have a proactive IR program to support the stock?”

“The mistake we made was underestimating the amount of time we would spend on IR. We viewed it as ‘OK, we’ll set aside some time each quarter.’ You’re basically giving birth to something that you need to pay attention to 100 percent of the time. When a research analyst publishes a report that is factually incorrect, you can’t just assume that people know what you know. You really have to hit the pause button on everything you are doing and deal with it. Hiring very experienced IR resources – internally and externally – will cost money but you should just pay whatever it takes. The return on that is probably, in terms of market value, 300 to 1.”

Consider the 3 Rs in Choosing Underwriters – Relationship, Reputation and Research

“Choose a highly qualified banker – one that you truly believe is going to be your advocate inside his/her firm, your organization and in the marketplace. You will need a banker who is going to give you straightforward, honest advice, and is willing to say no if needed. The worst thing you can do is pick a bank based on name and end up with someone who really isn’t ready to go to battle with you. In addition to spending time with the potential banking firms, spend as much time as you can with the individual who is really going to be carrying the torch for your company. Pick one bank to really lead the charge.”

“It is incredibly important, regardless of the size of the company, to have smaller research-focused firms supporting you. Post IPO, this has created a lot of value and visibility for us because the large bracket firms can become very busy with their underwriting pipelines and other issues while we tend to get more focus on the margin from the smaller firms.”

Assemble a Strong and Highly Seasoned Group of Advisors

The panelists all agreed: each of your IPO advisors – whether your law firm, your underwriters, your audit firm, or your investor relations counsel – can make all the difference in getting the transaction done. And, make sure to establish effective platforms for communications, marketing, and IR infrastructure before, during and after your public debut.

“One of the most important decisions you will make is lawyer selection. Find the person in a firm that is absolutely the expert in your field and that is going to fight for you. At the end of the day that person is going to give you the tough advice and help you through the process.”

“Make sure you have a great controller. That is the person who is really going to shepherd the accounting process, which often drives the timing of an IPO.”

“It really helps to have a CEO who has a great appreciation for how important the public process is and what it means to be attentive to shareholders; a good communications coach can help with this.”

“Make certain the executive team is media savvy and has sufficient control of social media and communications.”