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IPO readiness – Getting ready before going public

Most companies planning to go public believe the IPO journey starts from preparing the prospectus and finishes the day it is listed on the exchange. However, the IPO process actually starts 12–24 months before listing. Companies need to be self-aware, understand their objective behind the IPO, and take the most challenging steps to meet market expectations of being a listed company. Lack of preparedness could lead to unforeseen obstacles during the pre- and post-listing periods. Thus, listing requires well-planned and strategic communication before, during, and after the IPO. With decades of experience in assisting companies to go public, trusted consultants help them get ready for the big day and beyond.

How companies can benefit from prior preparation?

Several facets must be considered while preparing for an IPO. A thorough preparation ensures all the critical aspects are addressed and last-minute hassles are minimized.

Journey of an IPO

From internal controls to accounting standards and corporate governance, everything comes under scrutiny once the company starts the formal IPO process. Proper planning beforehand helps it to make the journey smooth and achievable in the allocated time frame.

Considerations before IPO

While meeting the company’s funding requirements is often the top reason for listing on the exchange, the company needs to understand how potential investors look at various aspects of the company before investing. These range from financial position to management caliber, which needs to be articulated well to present a compelling investment case. A company needs to consider myriad factors and prepare accordingly.

“A detailed self-assessment would enable the company to evaluate where it stands vis-à-vis the desired position before going public. The time required to fill the gaps needs to be ascertained, and accordingly, the necessary steps should be taken in a planned manner. A thorough groundwork and preparation would go a long way in generating maximum investor interest for the public offering.”

Pre-IPO Activities

Initial planning and preparation are a critical success factor for a smooth execution process. Undertaking assessment before an IPO helps the company identify gaps between market expectations and its current reality. Each market is unique and therefore expectations are different from exchange to exchange and industry to industry. Hence, expert advisors who have worked across the globe know the right approach for companies and could prepare tailor-made service/modules based on its specific needs. However, there are a few key areas that must be universally addressed by each company.

Closing the Gaps

After pre-assessment, the company gets a clear picture of what needs to be changed to meet the market expectations. Therefore, the next step is to make the requirements into achievable plans. In-depth assessment and careful planning are required, and the company must develop a detailed action plan to achieve those goals. Sometimes, company planners set an unreasonable target for their staff that leads to a higher attrition rate during a crucial IPO process. Therefore, IPO candidates should work with an experienced advisor who will identify the most important issues that need to be resolved and are feasible to be completed before the IPO.

Key Statistics in IPO in KSA

The IPO market in KSA has undergone phases of large number of issuances to relative inactivity. During 2019, six IPOs went through on Tadawul with a total listing value of over USD25bn. KSA’s state-owned oil giant Saudi Aramco was the world’s biggest IPO and oversubscribed 4.7 times. Post listing, the stock generated 18% return within five days of listing. Similarly, other IPOs listed on the exchange were oversubscribed, but their stock price performances varied after the listing. Maharah Human Resources Co. delivered exceptional returns of 31.4% within five days of the trading session, while Arabian Centres Co. and Alkhabeer REIT Fund’s prices fell 13.5% and 6.0%, respectively, within five days of listing. However, preparing the company well in advance with proper planning and a focused approach could improve the chances of a successful listing.

How an Advisor Can Help During IPO Journey

A detailed self-assessment will enable the company to determine if going public is a step in the right direction. If the answer is in the affirmative, the company can start preparing for the IPO. The time and effort involved in preparing for an IPO are significantly high, and it might not be feasible for companies to manage the process themselves without impacting their core business. Moreover, as the IPO process represents an unchartered territory for most companies, hiring experts throughout the process would be beneficial both from a cost and time perspective.

There could be several reasons behind the success or failure of an IPO, such as an industry or global outlook, the timing of listing, company performance, understanding of market expectations, and extent of transparency about company information. Importantly, the success or failure of the company’s listing also depends on the market expectation or perception the company has set during the IPO. Thus, matching of expectations of both company and investors is critical to ensuring success of an IPO. There are instances where a fundamentally good company fails to get investors’ attention during an IPO or does not deliver good returns after listing, while some companies witness exceptional buying interest. Although certain unavoidable circumstances can lead to failure of an IPO, detailed planning prior to IPO process could lower this probability. Experienced advisors can prepare a company well ahead of time for a successful IPO through their insights on investor mindset. Their involvement could enable the company to chart the right path, and thereby give itself the best possible chance to have a successful IPO.