Oliver Rigby, CFO, The Panoply
In the latest of our series of articles with business leaders, Natasha Volkk, Executive Search Consultant at Moon Executive Search talks to Oliver Rigby, CFO at The Panoply.
Oliver has in-depth experience of advising on IPOs, particularly taking small cap companies - including The Panoply, a company he co-founded - to the AiM market of the London Stock Exchange.
At Moon Executive Search, most of our clients are listed businesses who work with us, either when they are planning a float or post float, when they are assembling their management team. In this article Oliver gives us his insight into why a business might look to IPO, the timings, what businesses need to be aware of from a commercial and operational point of view, and any pitfalls that need to be considered.
Why?
There are a number of reasons why a business might consider an IPO, but the main ones are:
Looking for additional finance to support growth
Looking for a platform to undertake additional M&A
Raising the profile of the business to allow it to win bigger contracts and overcome procurement hurdles
Another other reason is because it is a genuine alternative to raising private equity money. PE investors will usually have a fixed horizon in terms of what they are looking to achieve, and they’ll want to sit on the Board. Some management teams may feel that this is giving too much control to a third party, whereas IPO or public company investors largely let you run the business as you want to, as long as things are going well.
However, if you do decide that an IPO is the right route to take, you’ll need to make sure that the business has a very strong governance model. Having independent directors with credibility, who understand your market and the public markets, is also very important.
When?
A business can IPO at any stage in its development, because the AIM market of the London Stock Exchange is very supportive of new businesses.
However, it is not likely that a start-up business would be a good candidate for an IPO. Typically, a business needs to have been trading for several years, been through some type of private fund raising and gained market traction. It is also important to factor in the sector that the business is operating in, the future opportunity and the management team and their experience.
For example: a small logistics business with moderate growth, but low margins, is unlikely to attract IPO investment. Whereas a small technology business operating in a ‘hot’ area like cybersecurity or AI, where there is plenty of interest and appetite, may be more likely.
But timing isn’t just about the business, management, market etc being right. The management team also need to think about when the business wants to IPO. A lot of businesses leave the idea too late. Whilst the IPO process itself only takes about six months, it can take eighteen months to get the business geared up and ready to undertake an IPO.
Undertaking an IPO is a great journey to go on, but it’s not for the faint-hearted.
How?
To undertake an IPO the business needs to gain credibility in the market and build trust. People talk about ‘the business story’, so making sure the pitch is right is extremely important. The business proposition, it’s growth plans and the investment opportunity need to be well thought out and presented.
Your advisory team will act as the businesses’ advocates when going through the IPO process. Therefore, you need to appoint advisors who have a background and track record in your sector. Before you decide who to work with, meet with different advisors, because personal fit and buy-in are important.
Have an early conversation (twelve to eighteen months before a potential IPO) with your advisors about the company and what you are trying to achieve, outline your twelve-month plan and get their feedback. Then when you go back to see them closer to the time, having delivered on those objectives, you can demonstrate trust and credibility.
The next consideration is headcount. If you are a small entrepreneurial business, you may not have a full operating Board, non-executive directors or a CFO. The key people who present to the City are the CEO and CFO, and if the business doesn’t have a credible CFO who can stand alongside the CEO, then that can be a challenge.
If your advisors don’t have confidence in the management team, you will find that this gets flagged very early in the process, adds Natasha. And it is better to address any weakness which have been identified before going too far down the track with the IPO or you could find that you don’t have the market trust or credibility needed to successfully complete the process.
Beyond the management team you need to make sure the business has an operational team who can deliver the information required for the IPO itself. There is a lot of due diligence, an audit and a large amount of draft work which needs to take place.
Whilst strengthening the management and operational team can be an additional cost, which pushes down profits and can result in a lower valuation, having the key people in place is critical to achieving the IPO. For example, without a strong core team the CEO/CFO will end up doing so much of the work required to achieve the IPO, that immediately after the IPO they may find that they haven’t spent enough time on pipeline or business development and the company can then struggle in its first year which may have a very negative impact on share price.
It’s important to ensure that you get the right non-executive directors as they will also play a key role acting as your businesses’ ambassadors during the IPO process. They need to have credibility, be well-known in the city and bring sector experience or financial /other critical skill sets to the Board. It will also help to position the business favourably if your non-executive directors are prepared to invest at the IPO stage.
Having worked with businesses who have listed on AIM, FTSE and NASDAQ, at Moon Executive Search we know that the importance of getting the right non-executive cannot be underestimated, comments Natasha. In addition to having sector experience, ideally your non-executive director(s) should have been there and done it before as this means that they’ll be known to, and have a good reputation in, the City.
Timetable
The IPO timetable is driven by the financial results of the company - when they can be prepared, audited and put into the historical financial information section of the IPO admission document. The financial information included in the IPO can be a maximum of nine months old prior to the IPO being finalised. If you where to push this to the limit it is likely that there is an immediate filing requirement thereafter which you will need to be working on during the IPO.
In addition, there are typically only two windows to complete an IPO - January to June, or September to November. Therefore, if a business has a December year end the financials need to be prepared in April in order to get the IPO finalised before July. This puts a lot of pressure on the business and you need to plan well in advance to make sure you can meet the deadline.
What’s next?
When you’ve completed the IPO, you need to remember that the business has made promises to its investors and it needs to deliver on those. You need to make sure that the business hits the financial results which have been promised to the City. You need to strategically spend the money raised in accordance with the business plan. You should also have a massive party, successfully achieving an IPO is a great moment!
However, you need to remember that it is not possible to cycle back and run the business in the same way as before the IPO. The business has committed to being a public company and this can take up to 20% of the CEO and CFOs time – something which needs to be to factored in before you undertake the journey.
There is also a commitment to the City with a regular requirement to go and see investors and a regular reporting cycle, which must be achieved. In addition, you may have a new Board and they will expect regular reports about the business’s progress.
Conclusion
The biggest concerns which are raised with companies who are considering an IPO are around liquidity and the ability to sell shares going forward. In order to generate liquidity, you must out-perform as a business, and you’ve got to promote the business and generate interest. But remember, you’ve got to be the right sort of business, in the right sector, with the right story, in order to generate that interest.
Undertaking an IPO is a great journey to go on, but it’s not for the faint hearted. It is a very long, onerous and expensive process. You must be doing it for the right reasons, but it can provide a platform for spectacular growth, so should be considered as an option.
Finally, Oliver said, talk to the right people, make sure you are getting the right advice and good luck!
