Things to consider before an initial public offering (IPO)
An Initial Public Offering (IPO), as it is often called, means that a company makes its shares or debt securities available for trading on a marketplace, making it easier to invest in the company. Some investors, such as pension funds, have a policy and require that the company they are investing in must be listed on a qualified list.
Each listing is unique. There are big differences between listing a small local company with few employees and listing a manufacturing company that is present in different countries, or a global multinational. However, larger companies usually have more resources and internal routines in place, while smaller companies preparing for an IPO can have a very challenging workload within the organization.
No matter what type of company is going public, there is a lot to think about before an IPO. Here we list the most important things to consider.
1. Choose your marketplace
There are 7 different marketplaces, also called exchanges, to choose from. The choice of market affects the process the company needs to go through and how much preparation is needed.
Two of these are regulated marketplaces, OMX Nordic Exchange Stockholm and Nordic Growth Market (NGM) Equity.
Companies listed on regulated markets have extensive requirements and regulations that must be followed. The Swedish Financial Reporting Board reviews annual and half-yearly reports of companies whose home member state is Sweden and whose securities are listed on a regulated marketplace.
On Nasdaq OMX Stockholm there are mainly three lists to choose from:
- Small Cap (companies with market capitalization less than €150 million)
- Mid Cap (companies with market capitalization between €150 million and €1 billion)
- Large Cap (companies with market capitalization over €1 billion)
The Nordic Growth Market (NGM) offers trading in, among other things, shares, structured products and bonds.
The requirements for unregulated marketplaces are less extensive compared to regulated markets. Even on unregulated markets, there are relatively extensive requirements to be listed.
The unregulated, unofficial markets are First North for smaller growth companies in the Nordic region and NGM Nordic MTF and Spotlight (formerly Aktietorget), which focus on growing companies.
Below we continue with what is generally important in a listing and what you need to focus on if you choose to list on a regulated marketplace.
2. Securing the right skills for an IPO
You need the expertise of many different and important actors when preparing for an IPO. Here we have gathered the most important ones that are needed and need to set aside time for the listing process:
- Company management and owners
- An IPO means that many different decisions need to be taken by the management and the owners.
- Auditor is important to verify the company's historical financial data
- Bank or investment bank. There is often a person from here who leads the work during the listing process.
- Legal adviser. This advisor provides legal support and conducts due diligence from a legal perspective. In addition, they work on the prospectus (the central sales document).
- Tax advisor. A due diligence is needed from a tax perspective - a tax due diligence.
- Advisory team. Specialists are needed to help get the structure and accounting in place.
3. Set a structure/working model for the collaboration
Prepare a working model where you ensure the cooperation of all advisors involved in the listing process.
4. Understand the gaps in your business
Conduct an analysis of the company's operations to understand the current situation and deficiencies that need to be addressed prior to review by the stock exchange's appointed auditors. Usually, specialists are hired for a pre-IPO review, reporting on deficiencies that the company needs to address.
There are a number of regulations, requirements and practices that form the basis of what needs to be reviewed. These are areas that are reviewed in parallel:
a. Organization and competence
- The board (independence within the board), committees - how to work in these, management structure
- Management team and how they work and competence (independence, reporting).
- Finance functions - how it is set up, in terms of capacity (is there backup) and competence
- What knowledge is available about working in a listed environment
b. Establish a diagnosis of the company's financial reporting, compared to the requirements of each marketplace. Existing GAAP (e.g. K2 or K3) may then need to be converted to reporting under IFRS regulations. A conversion can then be extensive and requires restatement of historical periods. Common differences when converting to IFRS may be the presentation of financial statements, consolidation, revenue recognition, segments, financial instruments, leasing, share-based payments, treatment of business combinations and goodwill and impairment testing of assets.
c. Financial processes and reporting also include
- Identification of segments
- Review structure, documentation of processes and controls,
- Plan and structure for monitoring and monthly reporting
- Ensuring that you have all Policy documents
- Preparation of quarterly reports
- Financial calendar and be able to prepare the quarterly reports on time
d. Prospectus work (supporting information, historical figures 2-3 years history (preferably according to IFRS mix with qualitative explanation).
e. Investor relations function (communication and service to analysts, journalists and individual shareholders) needs to be added - set structure for it.
f. Strategic planning
g. Risk management, internal control - How to manage strategic, operational, legal and financial risk. With management and board and other organization. Ensure that the company manages the overall risk operationally.
h. Information security - Ensure governance, structure, policies and processes for IT etc.
5. Correct shortcomings that have been identified
Provide sufficient resources, address any shortcomings, the company must be 'stock exchange ready' and able to meet expected listing requirements. The company needs to be approved by a committee affiliated with the stock exchange and a review by the stock exchange auditor.
6. Take help before an initial public offering (IPO)
There are many parts that require specialized knowledge before an IPO, so take help in this work.
At Accountor, we know the process, but we do not advise companies in the process itself, but we help in certain parts. We have helped many companies that have gone public or moved from one listing to another, which also requires a similar review. The financial information we are good at. We can help in parts with documentation needed, help with the structure and be a sounding board in the process.
Even when the company is listed, you do not need to have everything in-house, but you do need to have control that the subcontractors you have live up to the rules.
Most difficult to put in place when preparing for an IPO
- Structure at a sufficiently high level
- The financial reporting
- The right regulatory framework and the competence therein
- Interaction management - operational parts, support function, board, audit committee
