(IPO) READY OR NOT?
Key issues WHEN moving towards an IPO
Amie Crichton & Joshua Carton
Initial public offerings (IPOs) are a pivotal step in the development and growth of a business and, if undertaken successfully, can be exciting and highly rewarding. The differentiating feature of long-term success in the IPO process, however, is how well the transformational process is planned.
In this article, we touch on some of the key issues that companies need to be aware of prior to taking the leap.
Are you IPO ready?
There are innumerable matters to consider as part of achieving a successful IPO and the process is fraught with complexities. Suitably qualified advisers (more on these later) will be able to help navigate these issues once a decision is made to go public. Below we outline some of the key matters for early consideration:
Goal setting: A successful IPO requires input from almost every arm of the business and an IPO often results in a change in company culture. Demands on management and staff typically grow exponentially when companies shift from being private to public. Reporting accuracy becomes more important, and deadlines more definitive. This means ensuring that the business is at the right stage of its development and growth and that all major stakeholders (including financial) are in agreement about matters such as structure, securities to be offered, capital to be raised, required disclosures, and forecasts. Start the conversation early to ensure everyone is singing from the same hymn sheet.
Assembling the right team: The right team of internal people is fundamental for a public company and a successful IPO. The company needs to attract people with the right combination of skills and technical abilities to enable it to deliver to market successfully. For the IPO process itself, an internal team comprising the chairman, managing director, the chief financial officer, an in-house lawyer, and an IPO manager or co-ordinator are typical.
Calling on the right advisers: Appointing external specialists to assist with the process can likewise make or break an IPO journey. External advisers often include an underwriter or lead manager, corporate advisors, an accountant, a lawyer, and a tax adviser. Share registries, public relations managers, graphic designers, and printers may also be needed. The specifics of your IPO might however demand specialist expertise, such as an industry expert, a valuer, or a foreign lawyer. Identify early in the IPO journey whether there are gaps in the IPO advisory team, and fill these to help facilitate a well-ordered IPO process.
Get the Board sorted: The ASX Corporate Governance Council’s ‘Principles of Good Corporate Governance and Best Recommendations’ for listed companies provides valuable guidance on appropriate board compositions. The ASX Listing Rules also require a listed entity to discuss its main corporate governance practices in its offer document and each annual report. If new board members need to be appointed, this needs to be done with sufficient lead time to ensure these members can familiarise themselves with the company and the IPO, including the prospectus and any forecasts. There are also good fame and character checks which are required to satisfy the ASX, which can take time.
Corporate structure: If you are a proprietary company, you must either incorporate a new public company as the IPO vehicle or convert the proprietary company to a public company. If your current corporate structure is unsuitable for a listed entity, or if you need to make other adjustments, a corporate restructure may be needed. This can attract complex legal and taxation issues. Make sure you identify the desired corporate structure for the IPO so that if any changes to the current structure are required, these can be completed early and included in the IPO timeline. Your constitution may also need to be replaced to meet ASX listing requirements. All of these steps may require special resolutions of members which can take time.
IPO Prospectus Insurance: Directors’ and officers’ insurance policies typically do not cover IPO liability and companies should consider procuring IPO prospectus insurance and specialist legal advice on the interplay of these two policies. Early placement is essential.
Media and investor relations: As a listed company, media and investor relations are critical to the effective management of market comms. The market’s expectation is that media releases are accurate, relevant and timely. Ensuring that clear policies for media and investor relations are in place early in the IPO journey will also decrease the risk of inaccurate or inappropriate information being released which could jeopardise the success of the IPO.
Major ongoing contracts & change of control clauses: Many major contracts contain a ‘change of control’ clause. These clauses govern situations where there is a change of ownership or control of a party to the contract. An IPO may trigger these. Often, a change of control clause gives rise to termination options. It is important to identify as early as possible prior to commencing the IPO process whether your major contracts contain these clauses, and if so, whether consents are required and can be readily obtained to avoid delaying the IPO or impact any forecasts.
Preparation underpins every facet of the IPO journey and is key to ensuring that all matters are dealt with appropriately. Entities contemplating the IPO process ought to identify all the steps and deadlines necessary to complete the IPO and map these out in a timeline so that all stakeholders and advisers are aware of how and when all the relevant steps need to be achieved. The timeline should also factor in potential obstacles such as reporting periods, public holidays, holiday periods, and the availability of regulators, investors, and the relevant advisers.
How Crichton & Co Legal can assist
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