Once you’ve determined that an IPO is the right approach, you’ll need to decide how you’ll go about it and make key decisions for getting started. In Canada, there are several options available to companies choosing to go public. The decision largely depends on the size of your organization, the listing requirements and which exchange interests investors in your company and industry.
If you choose a Canadian exchange, the listing requirements differ depending on the exchange and sometimes the industry sector. You should discuss the minimum listing requirements with your legal advisors.
This is Canada’s largest stock exchange. It primarily provides listings for larger companies from a variety of industries.
Listing requirements: The TSX divides each industry sector into tiers based on the state of development, historical financial performance and financial resources of the issuer. The TSX has industry-specific minimum listing requirements for the mining, oil and gas, industrial, research and development and technology sectors.
This is a Canadian junior exchange that provides listing opportunities for emerging companies that don’t meet the requirements of the TSX. Companies can graduate from the TSXV to the TSX as they grow and mature.
Listing requirements: Listing requirements reflect the fact that TSXV companies are usually at an earlier stage of their development. The TSXV has industry-specific minimum listing requirements similar to those of the TSX. More established companies are listed as Tier 1 issuers and less established are Tier 2 issuers.
This was founded as an alternative stock exchange for emerging companies to access Canadian capital markets.
Listing requirements: The CSE is comprised of companies at an earlier stage of their development and includes specific minimum listing requirements.
This Canadian exchange focuses on senior public companies and investment products.
Listing requirements: The NEO has specific minimum listing requirements depending on the type of issuer: corporate issuers, closed-end funds, exchange traded funds and debt-based structured products.
Companies also have the opportunity to list on international exchanges, most frequently US exchanges such as the NASDAQ or the New York Stock Exchange.
The United States offers a larger market, an increased profile and potential access to more capital and higher trading volumes. Its principles for IPO preparation are similar to those in Canada. On the downside, there are additional reporting costs, and companies may be subject to compliance obligations under the Sarbanes-Oxley Act, which requires an auditor to attest to the internal control environment.
Benefits include a wide choice of routes to market, exposure to a broader range of investors, lower cost of capital, increased analyst coverage and additional index inclusion. On the downside, there are slightly more requirements, particularly those relating to corporate governance, which can be costly. Depending on which listing segment a company chooses, it may be required to meet the United Kingdom’s highest standards of regulation and corporate governance.
Benefits include a highly sophisticated banking structure, minimal government interference with business, lack of foreign exchange controls and high degree of liquidity, as well as the absence of language barriers. On the downside, only companies from certain jurisdictions are accepted (British Columbia, Ontario and Alberta), while others must show that shareholder protections are similar to those in Hong Kong. There are also high costs due to stringent listing requirements, specifically around due diligence.
The cost of becoming a public company can be significant and varies depending on the size of the company, the complexity of the offering and structure of the organization after it goes public. Companies need to account for an increase in legal fees and compliance costs as a result of the regulatory burden though meeting continuous disclosure requirements. An increase in executive compensation, D&O insurance costs and increased audit and advisory fees can also be expected.
Performing a readiness assessment early in your IPO process guards against unwanted surprises later. It can highlight issues early, allows time to prioritize and plan a measured response and gets you started on much of the scoping and information gathering for the prospectus process to come.
While a readiness assessment is an investment of management time and money, the payback that results from taking the time to understand any gaps and develop a plan to remediate them is often instrumental to a successful process.
We view the IPO as a single, coherent process with the goal of delivering maximum value to the company and its stakeholders. This means ensuring the equity story is compelling and fully supported by all relevant key performance indicators (KPIs). It also means dealing with all of the structural, governance and reporting issues comprehensively so they’re fit for listing and don’t detract from value. An IPO readiness assessment establishes a basis for executing the IPO plan by helping validate the state of your governance, systems, controls and other key areas.
Before going public, you’ll need to deal with everything from company culture to technology demands and investor relations. Planning and execution against a well thought-out plan will smooth the transition to becoming a public company. The issues to consider include:
Demands on management and staff generally increase when a company goes public. Reporting accuracy becomes increasingly important, and deadlines are more definitive and often significantly shorter.
Consideration of which entity to list and which companies are to be part of the IPO group may have an impact on the transaction structure through tax planning, financing arrangements, share-based compensation and distributable reserves.
The market’s expectation is that media releases are timely and provide accurate, relevant information. Ensuring that policies are in place for media and investor relations will decrease the risk of releasing inappropriate information.
Increased reporting obligations mean technology underpinning financial reporting and the control environment are critical. It’s important to assess existing systems to identify any weaknesses or improvements before the IPO.
An IPO readiness assessment is an important step in understanding where your company is at and what you still need to do. It includes strategically reviewing the company across different functions to understand current practices and identify potential gaps. It also includes benchmarking against general market practices for listed entities and requirements set out by regulators. The most common areas reviewed in an IPO readiness assessment include historical financial information, reporting procedures and controls, governance and compliance, project management, structuring and taxation, people matters and budgeting and forecasting.
Do you need a more formal project management process to outline a set time frame for working on IPO readiness goals? Does a detailed project plan exist, along with senior responsibility for driving progress?
Is investor relations actively involved in all external communications? Will its scope extend to the new public company or will you set up a similar function?
Have you identified resourcing needs to support growth and meet ongoing listed company requirements?
Do you understand and have you modelled the tax implications? Are tax positions consistent across the entire organization?
Does the company have previously audited financial statements? Is there a finance team with public company experience?
Does management have an understanding of reporting procedures?
How accurate have previous budgeting and forecasting processes been?
Has the company made good progress in drafting corporate governance charters and mandates? Have you developed an internal control over financial reporting (ICFR) program?
What drives the business plan and what are your KPIs?
Is your business plan aligned to your strategy?
What valuation are you looking for?
What financing do you have in place and what do you need? Will you need to refinance ahead of an IPO (due, for example, to change-of-control clauses in your current facilities)?
How leveraged will you be after the IPO?
Do your current financial and operating systems allow you to plan effectively and robustly?
As part of the overall financing strategy, companies need to consider:
What’s the optimal structure?
What valuation do shareholders want or need and what are the payout strategies (such as dividend policy or share repurchase programs)?
Do you understand how shares are traded and settled? Are there any transfer restrictions on the company’s shares?
Who will update and maintain the official shareholder register?
While most companies focus on the equity issuance process when going public, they should also consider debt financing opportunities. These will help with ongoing business investment needs, including future acquisitions and growth. This will mean additional work as new debt issuances require registration of debt securities, engagements with financial intermediaries (investment and commercial banks) and establishment of credit ratings.