Richard initiated proceedings with a brief overview of the current demand for companies looking to IPO, commenting that demand at the moment is unprecedented and not surprisingly, that these are the most exciting times since the financial crisis.
In 2013, there were 16 main market listings. If, as an investor you had invested £1000 in each, you would have doubled your return. It is this return of confidence that is prompting such a deluge of businesses wanting to set off on the path to flotation.
What should you do if you are considering an IPO?
- Richard was able to give some great advice on how to prepare. First off, you must make sure of the quality of your advisors, the process of preparing for a float can become somewhat of an ‘advisor-fest’ and so making sure that you have a team of experienced and skilled advisors is critical, check for track record.
- Secondly, level of resource is critical to success. Running a massive data room, challenging the diligence process and delivering 20-25 work streams put enormous strain on the team, so plan for success, ensuring that you have the right skill sets in place – this may mean having to hire more skilled finance staff.
- Thirdly, the burden placed upon the CFO is enormous – you are front and centre of the process and have to be prepared on all fronts, including IFRS reporting, KPI reports, Forecasts, the Financial Control environment and a documented financial manual.
Richard’s introduction led into a fascinating debate during which many points were raised including;
- The risk appetite is greater for smaller companies. Those previously unable to consider IPO now can, availability of funding is there, and companies are looking to the US as well as closer to home. Discussion around the relative ease of fundraising through IPO rather than VC routes was a hotly debated topic, with concern that the barrier to entry to AIM in particular may be too low and can encourage the wrong type of business. Therefore, could it be that AIM is seen as a serious alternative to later round VC funding?
- Valuations of technology companies on the US markets are higher than the UK, and the availability of funding in the US is there to find. However, it’s not all positive, thought should be given to the fact that foreign private issuers are the first to suffer from any global political instability, the cost of regulatory reporting and compliance (quarterly reporting, monthly investor meetings, SOX compliance) mean that over a 5 year period, there is very little effect on value US v UK (source; LSE).
- Trade sale or IPO – this age old debate resurfaced, and the obvious argument which these dinners have covered before, that whereas a trade sale is an exit, an IPO is just the beginning, though of course can realise an exit of sorts for the VC. A dual track process should certainly be contemplated when thinking of IPO, by looking at possible PE investment or a trade sale at the same time as IPO can both open up wider possibilities as well as potentially increase valuation.
IPO certainly incites excitement, more so than the mention of trade sale, though it’s unclear why, is it ego driven? Is it always the right step for a company, is it the right vehicle for fundraising, and does it provide an alternative cash flow to the VC market? There are many questions that arise and must be considered as part of the process of possible flotation.
Certainly for 2014, the IPO market looks like a feast.
Baliey Fisher would like to say thank you as always to its sponsors; Julian Rae at Deloitte, Adrian Rainey at Taylor Vinters and Julia Bobrovich from Silicon Valley Bank.
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