The migration from a privately held to a publicly traded company can be onerous. Preparing for and operating after an IPO means that company owners must transition from operating with a degree of information privacy to working under the keen eye of regulatory bodies and shareholders.
Executives must navigate a complex set of steps when migrating to a new operating environment to provide confidence to external shareholders and regulators. Many of the steps are necessary, yet a few are myths. Falling prey to the myths could make the IPO process overly expensive.
A tier one ERP like Oracle or SAP ECC can support the reporting and control requirements but can impose a significant cost burden on a company. There are a variety of tier two packages, like Microsoft’s Dynamics NAV or SAP’s BusinessOne, which provide similar reporting and controls at a much lower cost. NAV and BusinessOne both provide more than 600 different authorization points to limit employee access to key transactional data. Additionally, both provide strong reporting capabilities. Companies preparing for IPO can take advantage of these systems at a fraction of the cost of their tier one counterparts.
Companies need key administrative functions, including HR, Legal, Internal Audit, Procurement, and IT. Privately held companies often have one department support more than one function with little worry about segregation of duties. Transitioning to having these functions supported by separate departments to provide investors a level of comfort around segregation of duties is costly. Combining a strategy of selective hiring and outsourcing key functions by using the right systems controls and documented procedures will provide the appropriate level of segregation of duties.
Depending on the complexity of the business and the internal finance and accounting staff’s knowledge, many public companies are able to successfully satisfy investor and board requirements with a regional or national accounting firm. More complex companies with unique legal entity and tax structures often rely on the Big Four to answer some of the tougher questions. However, this does not mean the IPO needs to fire the regional accounting firm. This may require a shift in roles so the use of multiple firms becomes most efficient and effective. The regional firm can provide tactical services at reasonable rates while the Big Four can provide answers to the more complex questions.
Equity firms will request a significant amount of plan-to-actual information from the due diligence through post-IPO timeframe. Following IPO, companies will often overcomplicate the budgeting and planning process, assuming the public company board will want to review information at the lowest level of detail. The reality is different. Public company investors do not require detailed budgeting information. Newly public companies should not feel compelled to have a complex budgeting process and should simplify, or possibly eliminate, most of the budgeting process.
A new board will most likely be convened to provide direction through the IPO process. In most cases, the equity firm sponsoring the IPO will drive who sits on the board. Executives often assume the new board will require detailed information about every aspect of the company. Accounting and Finance are tapped to develop complex board reporting packages with hundreds of pages. Board members do not typically have the time or the need to read detailed board packages. The CFO should work with the board to create a reporting package that highlights key information and provides a relevant level of transparency, results, and projections. This will reduce the distraction, cost, and effort required to pull together board reporting packages.
Trenegy has worked with a variety companies to prepare for an IPO. Read how to effectively set up administrative functions before an IPO in our article, Handcuffing the Kraken: Realigning for Growth.
