How to prepare for an IPO

Many of our regional exchanges have established listing rules and regimes. These are similar in construct to more established global listing environments such as London, New York and Hong Kong.

For example, it is a requirement across the Gulf Cooperation Council countries for newly listed companies to comply with the relevant stock exchange corporate governance framework. Frameworks differ from exchange to exchange but the core requirements of each are similar.

There are other aspects of regional listing regimes such as diligence requirements, shareholder lock-in requirements and valuation approaches that are also common across regional exchanges.

Consequently, the changes a company faces when choosing to sell down a portion of equity capital to new shareholders are similar across the Middle East. Those thinking of listing should not underestimate the time and effort required to achieve a smooth and efficient listing process.

There are common issues that need to be addressed when transitioning to life as a public company:

Cultural change/changing roles

Perhaps the biggest adjustment an entity faces is accepting that the way existing shareholders, board members and senior management teams work together needs to change. As a private company, the number of stakeholder interests in the company is smaller. Therefore, the way the business is run and managed takes into consideration the needs of those stakeholders. Often, a family or private business has a flat structure. Shareholders, board members and senior management teams are the same individuals.

As a publicly listed company, where external shareholders are also invested in the business, each existing stakeholder group has a different role to perform. As the number of shareholders grows, the rights and privileges of existing shareholders become limited to their voting rights at general meetings.

Similarly, a board director has a duty to perform an oversight and governance role within the organisation. This includes, for example, agreeing the entity’s strategic vision, appointing the senior management team and ensuring risks across the business are appropriately identified. The management team is then responsible for executing this and reporting to the board on its progress.

Broadening from an often-flat structure in a private entity is often the hardest cultural change when moving from private to public. To acknowledge that roles change and a degree of separation is required is difficult when you have been an owner of a private business for many years – and often for many generations.

The hardest challenges are often accepting that a process needs to be established to protect the interests of all stakeholders in order to meet governance requirements.

Transparency and public reporting

Not only does a company’s shareholder base broaden as a public company. The number of interested external parties or stakeholders increases significantly. As a public company, groups such as the investor community, regulators, analysts and the media are interested in understanding your business. Each stakeholder has a different interest but one that needs to be managed by the public company.

Accordingly, the level of information a public company discloses to the market and to these different stakeholder groups is considerably higher, and more frequent, than a private company. This is a key challenge for a new public company that has not previously been accustomed to disclosing information to the market on a regular basis, or does not have the systems and resources to create regular robust market information. The way an entity is used to engaging with these groups also needs to change.

Typically you see listed entities dedicate internal resources to investor relation functions or hire the services of third party investor relations firms to help manage these corporate communications. Frequent and timely communication is what most interests investors and other stakeholders.

A well-prepared listed company should invest the right amount of time and resources in an effective investor relations and corporate communications function.

Timeline for change

Preparing for the rigours of life as a public company is generally time consuming. It requires significant management and board input to effect the change that is needed when becoming a public company.

Companies often underestimate the effort required to properly prepare for the transition and fail to put in place appropriate mechanisms to manage the process.

A well-prepared company is a successful listed company both from the perspective of the time taken to list and to pass the regulatory test. It is also a high-performing listed company with a strong stock price.

Taking the necessary time to prepare and put in place all the necessary steps to ensure a successful listing is crucially important for any entity.

The time taken from initial preparation for life as a public company to successfully executing an initial public offering can be several years. Where we typically see IPO processes being delayed, or indeed fail, is in two areas. The regulatory review, where there is concern over the readiness of the entity to be a public company, or through investor concerns over the company’s equity story. Making sure these two factors are not roadblocks is key when preparing for life as a public company.