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. Last Updated: 07/27/2016

IPO: Are You Prepared?

There is significant evidence to suggest that a well-prepared company with appropriate corporate governance will command an improved valuation premium by investors. It's common sense. In the process of an IPO, management can optimize the valuation of their business and ensure that the IPO process itself runs relative smoothly.

A well-rationalized and presented investment story is essential to communicate effectively with investors, intermediaries and regulators. Most important, it should clearly identify the unique features of your company that sets it apart from its peer group and competitors and clearly articulates the objectives of the offer and the rationale underlying them. Management focused on creating and enhancing shareholder value will be better able to present their investment story to investors. You should explain your company's market position, its strategy, how it is being managed to deliver shareholder value and the nature of activities that drive value creation.

Experience demonstrates that some of the most successful company IPOs are those where quality management have been in place for some time and have been able to prepare the business for an IPO. Quality of management is one of the most important criteria by which fund managers assess investment opportunities. Investors expect the board of directors and management team to have the appropriate collective experience and expertise to run all areas of the business. Be prepared to justify your current board's experience and structure.

Prior to an IPO your company may need to reconsider your company's capital and organizational structure. Such structural changes may include the sale of non-core assets and/or businesses, or the simplification of legal and/or general corporate tax planning measures. The resulting corporate structure can create issues about how the financial information is best presented to investors while at the same time complying with regulatory requirements. Early advice should be sought for issues arising in this area.

Effective corporate governance is the core of an efficient market economy. This requires shareholders to have the information, rights, and practical ability to influence management through the governance process in order to ensure that the company's assets are being used fairly in the interests of all financial stakeholders. This involves both efficient internal financial reporting systems and controls, and external legal and regulatory mechanisms. If investors are unable to evaluate governance risk, they are likely to be reluctant to invest or they will require a significant premium to mitigate uncertainty. In many cases where the investor is unable to evaluate the risks associated with governance practices, equities may be inaccurately assessed. This disadvantages the company and raises the cost of capital. Market participants have numerous and vivid examples that show that poor corporate governance can destroy value.

The quality and standard of reporting demanded by the investment community and regulatory authorities is high. Institutional investors, both during and after the IPO, will require accurate financial and nonfinancial information to be produced efficiently and on a timely basis. The benchmark is extremely high. The investment community expect and the regulatory authorities require, a company to publish periodic financial and other information within tight time frames as well as publishing all price sensitive information immediately.