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.
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.
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.
What are the key objectives for the IPO (expansion, shareholder liquidity, reputation, ability to compensate employees with valuable stock)?
What’s the expected timing of the IPO?
Which market is the best fit for your business?
Which assets are you floating, where will you list and are there any separation issues (such as a spinoff from another business)?
What are the needs and expectations of your current and future stakeholders, and how will you manage their interests?
Do you understand the IPO process and have prior IPO experience?
Will there be a dual-track process run concurrently (such as an IPO and trade sale)?
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?
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?
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.
Partner, Capital Markets & Accounting Advisory Services, PwC Canada
Tel: +1 403 509 7341