8/3/2019 Advisory So You Want to Take the Ipo Road
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SECTORS AND THEMES
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So you wantto take the IPO
road?kpmg.com
KPMG International
8/3/2019 Advisory So You Want to Take the Ipo Road
2/20
o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
TheIPOprocess can be
conusing and complex
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms
8/3/2019 Advisory So You Want to Take the Ipo Road
3/20
Are you considering taking an IPO
journey? For many entrepreneurs and
private equity rms, an Initial PublicOering (IPO) is an objective in and o
itsel. For others, it oers a signicantopportunity or growth and public
awareness.
But getting to the IPO destination
and knowing what lies beyond can
be complicated and time consuming.There are no direct pathways. The only
path is the long and winding type. And
there will almost certainly be risks and
hazards along the way; signposts and
milestones to look out or; and a host osuppliers and gurus that can either help
you or hinder you.
Indeed, the IPO journey is not or
backpackers. It takes rigorous planning,
reliable strategies and a lot o hard work.
But or those intrepid travelers that can
get this part right, the IPO journey could
easily be the most rewarding adventure
a company can take.
ForewordAt KPMG, we know that the IPO process
can be conusing and complex or
rst-time travelers. That is why we havebrought together a global network o
our sharpest and most experienced IPOand Capital Market proessionals to help
guide you along the way. And having
successully steered hundreds o private
companies down the path to IPO and
beyond, we believe that we understand
how to plan the right roadmap to make
your journey a success.
Envisioning the journey
This guide and those that will
ollow will lay out some o thekey considerations, challenges and
opportunities that must be considered
by any executive preparing or a journey
to an IPO. Within these pages, we
provide actionable advice; valuable tipsand practical insights to help all types o
private companies make their journey a
success.
Well share our experience and pull back
the curtains on some o the commonpitalls and misconceptions about
planning and executing an IPO. Wellalso share industry best practices and
tips that we have learned along the way.
Developing a practical travel plan
We hope that this guide helps potential
IPO candidates to orm a clearer
picture o the journey that lies ahead o
them. And while there are certainly a
number o complexities that must be
considered, we are condent that
with the right guidance and support
travelers can avoid many o the hazards
on the road.
But a simple guide cannot cover all o
the technicalities and complexities that
are ound on the road to an IPO, and
so we strongly encourage potential
travelers to bring along an experienced
IPO proessional who can turn insight
into a tailored and comprehensiveroadmap.
Given our depth o experience
throughout our network o member
rms in more than 150 countries, weencourage you to contact KPMG to ndout how our proessionals can help your
company cut through the complexities
o an IPO and layout a sae travel plan to
help you reach your ultimate destination.
Manred Hannich
Global Leader
Global Head o Accounting
Advisory Services
Linda Main
Head o UK Capital
Markets Partner
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
8/3/2019 Advisory So You Want to Take the Ipo Road
4/20
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
8/3/2019 Advisory So You Want to Take the Ipo Road
5/20
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member frms o the KPMG network o independent frms are afliated with KPMG International. KPMG International provides no client services. All rights reserved.
8/3/2019 Advisory So You Want to Take the Ipo Road
6/20
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
Is it time oran IPO?
The frst question youshould ask yoursel iswhere you want to go and more importantly why?
The simple truth is that going public
may not be the right strategy or every
company. The choice o destination will
ully depend on the objective you are trying
to reach and your reasons or heading out
on the journey in the rst place.
Depending on your companys objectives
and maturity, there might be a number
o why an IPO could be the right step or
your company. For example, IPOs can
enable private companies to:
Access new unding: companies
seeking to grow organically or
through M&A may consider going
public to access new sources o long-
term capital that can be reinvested
into the business.
Deliver value to existing investors:
by listing your companys equity on the
public market, existing stakeholders
are able to monetize their investment
and create a viable exit strategy.
Build market awareness: many
companies pursue an IPO in order tobuild their reputation and visibility in
local and oreign markets, particularly in
cases where the companys main ocus
o operations lies outside o major
markets and the developed economies.
Incentivize employees:corporate stock option programs
are a strong vehicle or driving
employee engagement and tying
compensation to the nancial
perormance o the company. Broaden the governance structure:
while there are a number o ways to
strengthen a companys governance,
IPOs provide a strong catalyst and
proven ramework or revitalizing the
governance structure.
And while these are some o the most
common reasons to set out on an IPO
journey, there may be a number o
other side benets that can be attained
through the process. For example,
companies operating in politically unstablejurisdictions or ones with opaque
regulatory protection may nd that listing
on a oreign exchange provides a level oprotection or their existing investors. In
other cases, an IPO may constitute a step
towards securing lucrative contracts that
are reserved or public companies.
The wisdom o lookingbeore you leap
There are, however, a number o
important draw-backs to going public
that may not always be obvious beore
starting the journey. Companies
considering the IPO process should beaware that their organization may meet
a number o signicant challenges
along the way, such as:
Time and resource requirements:
being a public company takes a loto hard work, not only to ensure a
successul IPO, but also to maintain
your listing and uphold your stock price.
In particular, most executives nd they
are challenged to devote the necessary
time to successully manage both the
IPO process and simultaneously serve
their core business.
Transparency and reporting: public
companies are obliged to report
their nancial statements and uture
strategy to investors and analysts,which is not only time consuming,
but may provide competitors with
valuable insight into proprietary
business plans and strategies.
Regulation and compliance:
publicly traded companies ace an
exponential increase in the level o
regulatory scrutiny and compliance
that must be met, and i oundnon compliant they may ace sti
penalties or suer rom depressed
share prices as a result.
With the proper planning and
guidance, most o these issues can bemitigated
2 | So you want to take the IPO road?
8/3/2019 Advisory So You Want to Take the Ipo Road
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There may be a
number o viablealternatives to anIPO
Cost: private companies will invariably
need to invest in their company in
order to create the right environment
within which to go public. In manycases, signicant investments may
be required to create and ormalize
processes to ensure compliance with
IFRS and other nancial reporting
requirements.
Defnition: IFRS
The International Financial
Reporting Standards (IFRS) are aset o accounting standards that
apply to publicly traded companies
in most major markets (with the
notable exception o the United
States).
With the proper planning and
guidance, each o these issues can be
mitigated. But or many executives
particularly entrepreneurs the
requirements, rigor and obligationso perorming as a public company
are oten underestimated. The reality
is that public companies are very
dierent rom private ones, and some
executives may quickly nd thatthe eort and risk may not always
outweigh the benets.
I not an IPO, then what?
It is entirely possible that an IPO may
not be the right path or your company in
the near uture. There may be a numbero viable alternatives that can be
explored to achieve similar objectives.
These include:
Accessing bond markets: bond
markets provide an avenue or private
companies to sell their debt on public
markets, but without many o the rigorsor regulation that come with an IPO.
Bank borrowing: companies may also
gain new nancing through traditional
loan and debt vehicles raised through
commercial banks. But given the tightcredit market that ollowed the recent
economic recession, bank nancing
may not always be available and can
be comparatively expensive or manycompanies.
Mergers and acquisitions: an
alternative method or monetizing
existing investors is to either sell the
company or merge with a competitor,
eectively buying out the existing
shareholders. However, this oten
results in a loss o control.
Defnition: Leveraged
Buy-Out (LBO)
An LBO (a.k.a. bootstrap)
occurs when an investor takes acontrolling stake in a company by
using the assets o the acquired
company as collateral. LBOs are
extremely risky or investors and
the acquired company.
Joint ventures: expansion into new
markets can also be accomplished
through joint ventures with other
companies that can provide access to
unding, technology or key markets.Oten, joint ventures are ounded
between equals who then work
together to pool their resources and
achieve a shared goal.
Defnition: Private Equity
Firm (PE)
Private Equity rms are
investment managers who
invest in companies through a
variety o investment strategies.
Private Equity rms oten provide
extensive business experienceand best practices to their
network o companies.
So you want to take the IPO road? | 3
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
Private Equity: securing aninvestment rom a Private Equity rm
is a common method or raising undswhile simultaneously maintaining
the condentiality o the business.
However, this route does not always
provide a clear exit strategy or existing
investors and may reduce the overall
visibility o the company in the market.
The highly leveraged structure typical
in a PE deal also brings increased risks.
Clearly, the rst step or any executive
considering an IPO is to dene theirdestination, motivation and approach
which, in turn, will orm the basis o their
corporate strategy going orward. And i
an IPO turns out to be the best solution,
executives who have completed this
important rst step will be better placed
to move ahead with a clear understandingo their opportunities, goals and
challenges. Many companies nd that the
detailed planning necessary rom an IPO
also brings benets i plans change and
an M&A deal is contemplated.
8/3/2019 Advisory So You Want to Take the Ipo Road
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Its going to be anexhausting andexhilarating trip.And youll never be
the same again.The journey to an IPO is not a weekendpleasure trip. It takes a lot o hard work,
planning and a substantial investment
o time and money beore you can start
down the road.
Indeed, any company considering an IPO
would be well advised to make sure theyare in proper shape to take the journey.
This involves conducting a thorough
pre-IPO readiness assessment that
compares critical processes and controlsto the standards required o a listed
company. And much like a visit to the
doctors oce, you may not always like
what you nd out.
A fnancial health-check
For many private companies, the
process o going public will necessitate
a undamental shit in nancial reportingand planning. For one, IPO candidates
will need to comply with the local
regulatory requirements or their
respective exchange. In the EU and a
number o other jurisdictions, this oten
requires companies to become IFRS
compliant, and in the US this means
compliance with both the ederal
SarbanesOxley Act, and local US GAAP
accounting practices.
But investors will also want to see a
history o strong nancial reporting.
So many companies will need to
retroactively re-analyze their past
nancial results to bring them intocompliance with the relevant accounting
ramework. Needless to say, this can be
Getting in shape
or the journey
4 | So you want to take the IPO road?
a lengthy and resource intensive initiative
and may be dicult to manage in parallel
to the ongoing responsibilities o the
nance department.
The nance department itsel will also
require a undamental transormationas the company prepares to go public.
Financial reporting requires companies
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
Defnition: SarbanesOxley
Act (SOX)
The Act sets a ederal standard
or all US public company
boards, management and public
accounting rms and covers issues
such as auditor independence,corporate governance, internal
control assessment, and enhancednancial disclosure.
8/3/2019 Advisory So You Want to Take the Ipo Road
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to create and maintain strong processes and controls that
stand up to the rigors o compliance. It is also strongly advised
that the nance department be staed by proessionals with
experience reporting to capital markets.
The market will also expect to see a strong and detailed
nancial plan or the company, as well as robust orecastingand budgeting capabilities. Forecasting, in particular, will be
critical to the management team in the uture as they work to
deliver reliable earnings guidance as a public company.
So you want to take the IPO road? | 5
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
Defnition: GAAP
The Generally Accepted Accounting Principles (GAAP)
reers to a standard ramework o guidelines or nancial
accounting that includes standards, conventions and
rules that accountants must ollow in the preparation onancial statements. However, the term GAAP reers
only to locally accepted rules, and so the category couldinclude IFRS or other local GAAP rules.
An IPO ftness test: Key diagnostic questions
Will we attract investors?
Canweprepareanattractiveequitystorywith
supporting evidence?
Dowehaveclearandcrediblegrowthopportunities?
Dowehavewell-denedKeyPerformanceIndicators?
Will we meet the requirements?
Isthereanappropriatetaxstructure?
Arewereadyfortheduediligencechallenge?
Dowehavearobust,stand-alonenancialtrackrecord
produced under IFRS or equivalent standards?
Can we produce high-quality fnancial inormation
on a timely basis?
Areweabletocomplywiththerulesforongoing
disclosure and transparency?
Canweproduceaccurateandcomprehensiveinormation or the board?
Arewereadyfortheadditionalscrutinyfromanewset
o stakeholders?
How do we measure up on corporate governance?
Dowehaverobustsystemsandinternalcontrols?
Areourriskmanagementprocessessufcient?
Havewethoughtaboutcorporatesocialresponsibility?
Isthereanalignmentofstaffremunerationto
perormance?
Isthereclearandtimelycommunicationwithkey
stakeholders?
Canweestablishanappropriateboardstructure?
8/3/2019 Advisory So You Want to Take the Ipo Road
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Keeping the executive team ft
For the management team, the process
o going and remaining public will
create new and oten overwhelmingdemands on their time. On its own,
the IPO process is massively time
consuming and key executives oten
nd they neglect the day-to-day needs
o the business as a result.
In act, in a recent survey conducted
or KPMG LLP (UK), 81 percent o
nancial directors and 62 percent o
chie executives who had recently
gone through an IPO admitted that they
had spent more than hal o their time
ocused on the IPO process (at a time
when, arguably, they needed to be more
involved in the business than ever).
And ollowing the IPO, key executives
will continue to nd themselves
acing new pressures and challenges.
Analyst road-shows, investor briengs,
Annual General Meetings (AMGs) and
shareholder inormation requests dont
only take up a signicant amount otime or these executives; they also
orce them into the limelight. Indeed,
many executives o privately-held
companies may not be ully prepared
or the level o scrutiny that comes withgoing public.
Analysts and shareholders will also
expect executives to have some prior
experience operating in capital markets.At the same time, the act o going
public requires a behavioral change
on the part o executives. Openness
and transparency are key aspects o
dealing with shareholders, and many
o the more entrepreneurial executives
may have to re-adjust to the idea o
having their plans scrutinized by theinvesting public.
81 percento nancial directors and 62 percento chie executives admitted thatthey had spent more than hal o theirtime ocused on the IPO process
The executive ftness test: Key diagnostic questions
Do you have the necessary time?
Canyouproperlyfulllthepre-IPOrequirementsandsimultaneously
maintain business operations?
Willyoubeabletospendupto20%ofyourtimeoninvestorrelationsafter
the IPO?
HowwillyouprioritizeIPOandday-to-dayoperations?
Are you up to the scrutiny?
Areyoucomfortablewithyourcompensationandothersensitive
inormation being disclosed?
Canyourespondappropriatelytoshareholderandinvestordemands?
Areyoupreparedtobetransparentandclearineverythingyoudivulge
to the market?
6 | So you want to take the IPO road?
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
8/3/2019 Advisory So You Want to Take the Ipo Road
11/20
So you want to take the IPO road? | 7
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member frms o the KPMG network o independent frms are afliated with KPMG International. KPMG International provides no client services. All rights reserved.
Plotting your roadmap
To be sure, there are a number o
massive complexities acing companies
undertaking the IPO process. Thegood news, however, is that with
proper planning and a clear roadmap,
companies can cut through the
complexity to a relatively straight-orward IPO path.
But it is not to be taken lightly. Having
conducted a pre-IPO readiness test,
many companies will fnd that they ace
many months o hard work beore they
can start the ormal process in earnest.
The simple truth is that there are no
shortcuts through the IPO process; and
executives should be wary o anyone
oering one.
And since the level o detail and rigorthat goes into the pre-IPO preparation
will have a direct impact on the eventual
valuation o your company, it is critical
that executives take the time to create aclear and reasonable roadmap.
Central to this process will be the
development o a clear equity story
that enhances the IPO candidates
negotiating position with investmentbanks and a clear understanding o the
depth and type o comparative fnancial
statements that may be needed to
support that. And or companies with
complex fnancial histories (or example,
resulting rom diverse geographical
scope or a history o mergers and
acquisitions), additional documentation
may be required, such as pro-orma or
carve-out fnancials.
To achieve this, executives will need to
rely on trusted advisors and partners;people who have traveled the road
beore and are aware o the hazards
that can get in the way. They will need
to adjust their perception o the IPO
process to create realistic expectations
about the level o eort, time and
experience that might be required.
And they will need to do some very
heavy liting to make sure they properly
execute their plan, even while thebusiness rapidly changes around them.
Defnition: Carve-out fnancial
statements
Carve-out statements are used to
separate the fnancial statements
o a particular division or business
unit to assist in the valuation
process. Carve-out statements are
also used in situations where onlya part o the organization is beinglisted on capital markets.
8/3/2019 Advisory So You Want to Take the Ipo Road
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Ready to start the journey? Watch out or some common hazards.
Now that you are ormally headingdown the path to an IPO, expectations
internally will be high. And why not?
Ater all, your employees know rst-
hand what a strong uture lays ahead or
your company. But there are a number
o areas where expectations can oten
get ahead o reality.
For instance, many executivesenter the IPO process with high
expectations or their initial valuation
which are oten not met. That is
because or investors valuation
will be based on a number o critical
actors, including some that are
outside o the companys control (suchas sudden fuctuations in the economy,
disappointing earnings rom peers,
or negative reviews rom analysts).
And since your company will be a
comparatively unknown entity to
the market, you may also expect to
see a discount added to their eventual
valuation to oset the perceived risk.
Valuation can also depend on the quality
o your advisors. Those with strong
experience and international networks, or
example, may be able to attract a widerscope o investors or be more aware o
existing investor biases. Those without,
however, may only accentuate the
problem by citing high valuations at the
start o the process and then continuously
downgrading their expectations as theday o IPO approaches.
O course, the price that a company
can etch or its shares is ultimately
constrained by the amount o money
available in the market. During the
nancial crisis, or example, a massive
amount o liquidity was removed rom
most o the major markets around the
world, seriously aecting the valuations
o the ew companies that conducted
an IPO during that period. And while
investors are once again starting to putmoney back into the market, there is
only a nite appetite or IPOs amongthe investor community, which may also
aect the initial valuation.
Travelers should note that keepingmomentum and employee engagement
through the IPO and post-IPO period
is key, and management will need to
make extra eorts to set and maintain
appropriate expectations within their
organization.
Hazards you
should avoid
Myth: A history o solid growth
is the most important
actor or attracting
investors
Fact: Your past history o growthis important or setting
precedent, but investors
want to know that the
company has more growth
opportunities ahead. A
critical part o the pre-IPO
process is writing yourequity story to demonstrate
your companys growth
potential and plans orthe uture.
Myth: All investors love an IPO
Fact: Only a certain segment
o the investing audience
is willing to take on theheightened risk o investing
in a company with no
public track record. True,
IPOs tend to gain the most
attention and generate the
most press coverage, but
this is not indicative o the
markets appetite or IPOs.
Myth: Dual listings net higher
valuations
Fact: Listing on two exchanges
oers a number oopportunities to public
companies such as access
to a broader range o
investors, enhanced public
awareness, tax benets
and even access to new
markets. However, dual
listings do not generallyimpact the valuation in any
direct way.
8 | So you want to take the IPO road?
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
8/3/2019 Advisory So You Want to Take the Ipo Road
13/20
Setting a manageable pace
The journey to a successul IPO is amarathon, not a sprint. Far too oten,
executives rush out o the gate towards
an IPO believing that by shear will o
spirit they can speed up the process.
But the IPO process takes time and
patience. It is a stepwise program that
makes incremental advances over a
period o time to saely and successully
achieve a goal.
So instead o setting a date or an IPO
and then rushing headlong towards it,
executives would be better served to
set a timetable or achieving steps in the
process instead, and then be prepared
to pull the trigger when all o the workstreams are completed. In this way,
managers can sharpen their ocus on
achieving the project plan rather than
xating on the looming horizon.
Setting an appropriate pace will also
be important or helping executives
balance the demands o the IPO
process against the needs o the
organization. Preparing or an IPO can
be a signicant change process, and
employees may need sucient time
to acclimatize to the behavioral change
that will be required. For instance, the
implementation o a new orecastingand budgeting processes may impact
a number o internal divisions such as
sales, IT and distribution, all o whom
will need to be trained on new systems
beore the IPO.
Indeed, there are two major pot-holes
that can trip up companies in the
immediate atermath o an IPO: missing
their rst earnings guidance to the
market and missing their rst nancial
reporting deadline. Both are symptoms
o excessive speed in the pre-IPO
process. On closer inspection, one oten
nds that most companies that stumble
in this regard have rushed through the
IPO process and either do not have the
proper systems and controls in place,or their sta is too inexperienced or
unprepared to meet the heightened
expectations o the market.
So while taking a measured pace may
be rustrating or many organizationseager to debut on the public markets,
travelers on the IPO road will ultimately
nd that their pace is directly related
to their ability to smoothly transition
through the IPO process and into
public lie.
Myth: The most important
step or US listings
is compliance with
SarbanesOxley Act
Fact: Sarbanes-Oxley complianceis certainly important or
any company seeking a
listing on US markets. But
there are a number o other
issues that are equally
important and complicated
to achieve. Appropriatenancial reporting
capabilities, or example,
or reliable systems andcontrols.
Myth: Listing on a oreign
exchange wont change
my management
structure
Fact: Taking a company publicwill almost certainly cause
widespread change within
the organization in general
and the management
structure in particular. And i
oreign markets are selected,
management may even needto relocate to that country
in order to maintain close
proximity to the investorand analyst community.
So you want to take the IPO road? | 9
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
8/3/2019 Advisory So You Want to Take the Ipo Road
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Are we there yet? It alldepends on you.
As weve discussed in previous
chapters, setting and maintaining
a sustainable pace is critical to IPO
success. But nobody likes heading out
onto the open road without knowingwhen the journey may end.
O course, the answer ully depends
on the amount o work that is identied
through the pre-IPO readiness check.
Developing appropriate controls and
eliciting the right behavioral changes canbe complicated and time consuming. In
some cases, companies may have very
little work to accomplish over a matter o
months. This may be particularly true or
some PE backed companies that have
access to experienced capital market
proessionals and rigorous accounting
platorms by virtue o their ownershipstructure. Others, however, may need
to spend a year or more on these criticaltasks, particularly where companies
evolved rom an owner-operator model.
IPO candidates may also need to
consider other timing actors. For
instance, an IPO prospectus mustcontain up to date nancial inormation,
which means that the IPO may need to
occur shortly ater the companys year
end. There are also earnings seasons
on many markets, where certain sectors
tend to announce their earnings within
the same timerame. And there are
even times o the year when companies
would be ill-advised to launch an IPO:
late December and early January, or
example, or over July and August whenmany markets tend to see much lower
trading volumes.
How long will
your trip take?Market turbulence and economicuncertainty can also aect the timing o
an IPO. It would be extremely unwise
or a company to launch an IPO in the
midst o a contracting economy orloss o liquidity on the market. And
while this may delay an IPO by an
unspecied time, the upside is that
once the markets start to recover, these
companies can oten benet rom afood o new capital into the market. For
the rst batch o IPOs during a market
recovery, pent-up demand and excess
liquidity can oten lit valuations above
their initial market prices.
However, setting aside these timing
considerations, and looking only at
the ormal pre-IPO process, most
companies tend to require our to six
months to complete the ull process.But there is much to be done during this
Myth: I can relax once the IPO is
over
Fact: Extensive quarterly nancial
reporting requirements
starting immediately aterlisting, monthly or quarterly
brieng calls, annual
reports, many executives
underestimate the
demands o the incessant
pace o retaining the listing.
Quarterly or semester
brieng calls, annual reports
and analyst road shows
are just a ew o the dutiesthat executives o public
companies must participate
in, and may impact their
ability to tend to their
regular responsibilities.
short time rame, including: regulatory
paper work and reviews; the sourcing
o appropriate underwriters, lawyers,
accountants and auditors; pre-IPO
analyst presentations and investorconerences; the creation o comort
letters and other legal documents; as
well as many other critical steps that
we will discuss in more detail in uture
guides.
10 | So you want to take the IPO road?
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
Objectivescoping
Pre-IPOdiagnostics
Pre-IPOtransormation
Formal IPOprocess
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Creating a schedule: Key timing
considerations
Is your company up to public
market standards?
Whatisthescaleofchangethat
must be accomplished?Whatresourcesareavailableto
achieve your pre-IPO plan?
Doyouhaveastronghistoryof
nancial reports?
Is the economic environment
right or an IPO?
Isthereliquidityintheequity
markets?
Howhaveinvestorstreatedyour
competitors stocks over thepast 12-18 months?
Isthemarketonanupwardor
downward trajectory?
How long will the ormal IPO
process take?
Areyoulistingonasinglemarket
or multiple?
HowexperiencedareyourIPO
advisors and suppliers?
Canyouexecutivesdevoteproper attention to ullling the
process?
Defnition: Comort letter
A comort letter is a document
prepared by an external auditor
regarding the statutory audits,
statements and reports included in
a prospectus. Comort letters are
typically signed prior to the pricing
decision or a public oering as apart o the due diligence process.
Comort letters are a requirement
o the listing process or manyEuropean exchanges.
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
So you want to take the IPO road? | 11
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Choosing
your travellingcompanions
12 | So you want to take the IPO road?
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
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Who should you bring on yourroad-trip?
There are a lot o potential suppliers and partners in the marketthat claim to be IPO experts. But not all o them have the right
experience or every situation. For example, a unique skill set is
needed to support companies that are pursuing a oreign listing,
and companies that are seeking a dual listing will need suppliers
and partners that can operate eectively in both jurisdictions.
And across the board, a high level o experience dealing with your
chosen market is a must. Regulators are becoming increasingly
vigilant about mistakes or inconsistencies in lings and prospectus
paperwork, which can cause unexpected delays and create a knock-on
eect on investor condence. Whats more, experienced IPO partnersare oten able to help their clients achieve a higher valuation by leveraging
their experience and contacts to remove misconceptions and preparetheir client or the rigors o the IPO process.
The partner test: Key considerations or selecting your IPO partners
and suppliers
Do they have the right experience and reach?
HavetheyhelpedsimilarcompaniesconductasuccessfulIPO?
DotheyunderstandhowtheytintothefullIPOprocess?
Dotheyhaveasignicantpresenceinthelocationswhereyouare
listing?
Dotheyhaveatrackrecordorreputationonthemarketonwhichyou
are listing?
Do they have the right culture?
Aretheycollaborativeintheirapproach?
Dotheyshareideasandopportunitiesthatmightariseintheprocess?
Cantheyprovideaprofessionalandhigh-qualityservice?
Are they ocused on what is best or your company?
Dotheyexplorealternativestoensureyouareapproachingeach
challenge in the best way?
Aretheyfocusedonhelpingyouunderstandtheprocess?
Cantheyprovidethebestteamtomeetyourcompanysuniqueneeds?
KPMG proessionals strive to delivervaluable and insightul advice that
cuts through the complexity o theIPO process
So you want to take the IPO road? | 13
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
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The key players
While the specic suppliers and partners that will be required are dierent rom
market to market and company to company, the ollowing advisors are oten called
upon to support the pre-IPO process:
Player Role
IPO Advisors To conduct a pre-IPO readiness test, IPO candidates will generally want to retain experienced
IPO advisors with a robust understanding o the standards required or public companies and a
holistic viewpoint that includes nancial systems and reporting, governance structures, businessprocesses and controls, human resources and change management.
Lawyers Conducting an IPO will require a team o lawyers with experience developing prospectuses
and structuring capital market contracts. In cases where the candidates in-house council has
prior experience with capital markets, they will oten lead the legal work stream. Throughout the
process, other lawyers will also be involved on behal o your underwriters, banks or auditors.
Accountants From the pre-IPO preparations through to the post-IPO period, accountants will be a key partner
or the nance department. The restatement o past nancial reports and the creation o controls
and processes to ensure a strong reporting unction will all fow rom the companys accountingrm, so it will be important to select a rm with experience in both accounting and system design.
Auditors All regulated capital markets require public companies to employ an independent auditing rm
that can review and attest to the consistency o their nancial records. While it is not necessarilya requirement, many IPO candidates choose to retain one o the Big Four audit rms as their
reputation and independence is generally acknowledged around the world. However, in all
markets, audit rms are orbidden to also perorm accounting services or the same client.
Investment bankers/
UnderwritersUnderwriters perorm a variety o dierent unctions depending on the market and jurisdiction.
In the UK, or example, the investment bank perorms a ormal roll called the sponsor. In all
markets, the investment bank is responsible or disbursing the shares to the market, promotingthe IPO and communicating with institutional investors.
Investor relationsproessionals
Part Public Relations proessional, part capital markets guru, the IR proessional manages the dayto day shareholder communications and the regular investor and analyst requirements. All public
companies will need to maintain an IR unction, and this person or team o people should be
brought into the pre-IPO process as early as possible.
Business Advisory
and IT IntegrationThe pre-IPO readiness check will likely highlight a number o areas where companies will require
the outside support o business analysts, strategists and integrators to create everything rom a
compelling go-to-market story through to back-end technology integrations.
14 | So you want to take the IPO road?
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
Finding the right partner
Identiying and retaining the right
partners can be a challenge or manyprivate companies. To start, IPO
candidates should talk with their peers
and existing advisors to identiy an IPO
Advisory team that ts their needs andculture. In our experience, it is also
important to select an advisor with a
global network, a multi-disciplinary team
and a strong reputation or successully
advising IPO candidates.
And o course, companies considering
taking the journey to an IPO can alwayscontact any o KPMGs member rms
across 150 countries and in every majormarket. With deep experience in every
step o the IPO process, rom pre-IPO
readiness tests through to post-IPO
strategies, KPMG proessionals always
deliver valuable and insightul advice
that cuts through the complexity o the
IPO process.
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10 stepsto a hazard-reepre-IPO journey 1
Set your destinationknow whether an IPO is the right choiceor your company at this time
2Formulate your equity storya strong equity story highlights the past success
and uture growth potential o an IPO candidate and
helps achieve a higher valuation
So you want to take the IPO road? | 15
2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member rms o the KPMG network o independent rms are aliated with KPMG International. KPMG International provides no client services. All rights reserved.
3Identiy and select an IPO advisormake sure they have extensive experience and a holistic
perspective
4Choose the right exchangemake sure you are listing on the most appropriate market or your
company and strategy
5Conduct a pre-IPO readiness testfnd out what systems and processes must change beore you can start the
ormal IPO process
6Develop a plan and timelineset a reasonable pace and consider bringing in experienced external support to
augment your team and ensure business continuity
7Close the gapcreate and execute a plan that brings systems and processes in line with market
requirements and norms
8Select your partnersrom lawyers to underwriters, these suppliers must be highly experienced with capital markets
9Create an Investor Relations unction
this will be your conduit to the investors and analysts
10
Prepare your fnancialsyou will need to go back three to our years to achieve the requirements or most markets
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Contact us
Manred Hannich
Global Leader
Global Head o Accounting
Advisory Services
T: +49 30 2068-4125
Linda Main
Head o UK Capital Markets Partner
KPMG LLP (UK)
T: +44 (0) 20 7311 8574E: [email protected]
kpmg.com
The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual
or entity. Although we endeavor to provide accurate and timely inormation, there can be no guarantee that such inormation is
accurate as o the date it is received or that it will continue to be accurate in the uture. No one should act on such inormation
without appropriate proessional advice ater a thorough examination o the particular situation.
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rms are aliated with KPMG International. KPMG International provides no client services. No member rm has any authority toobligate or bind KPMG International or any other member rm vis--vis third parties, nor does KPMG International have any such
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