From Joe Pacor
Well, maybe not so fast. The first half of 2011 did show significant gains over the same period last year, with 79 IPO’s raising $24B, verses 70 IPOS’s and only $9B last year. Many familiar names have shared the spotlight recently, including Zillow, Linked-In, and my northeastern regional favorite, Dunkin D’s. However, things slowed down a bit following the volatility after the S&P US credit downgrade. So I thought this pause provided an opportunity to review the financial IPO readiness companies need to adhere to in order to ensure a successful market launch. There is an adage that asserts a pre-IPO company should be operating and acting like a public company…but what does that mean?
Firstly, full financial transparency and reporting is a prerequisite prior to a successful IPO. Investors will be analyzing all information in advance of the listing, assessing how effective the finance and accounting functions are, as well as the corporate governance. There will be a focus on key issues, such as the treatment of revenue recognition, the valuation of inventory, and cost management, to name a few. Then there is the attention given to the company’s ability to accurately forecast, plan and budget for the upcoming business operations. Next, there will be the evaluation of management’s ability to properly disclose risk-based processes and efficiently record and report on transactions which merit such attention during the close process. In addition, there is always a keen interest in the treasury and risk management capabilities, especially in light of the impending large infusion of capital which results from the IPO. The good news is that these considerations can be very well-managed in advance of going public.
So, what steps are necessary to ensure the IPO goes as smoothly as planned? From the finance perspective, it starts with the strength of the applications and the IT infrastructure which is in place. It is paramount to have the right information, at the right time, available for all interested parties. Reliable, current and useful corporate financial data is a reflection of the management team and can even be viewed as a competitive differentiator. The timely ability to report on results and address issues, risks and opportunities will instill investor confidence right out of the gate. Important areas to focus on include: accounting and financial close processes; disclosure management procedures; business planning and forecasting; corporate governance and controls; risk management and treasury functions; and, corporate performance management. Before going public, the best investment to be made will be in these solutions. SAP has comprehensive offerings supporting the IPO financial landscape, and you’re invited you to learn more at the micro site SAPCFO