Top five IPO readiness tips

Indonesia’s economy has faced ups and downs, from its economic resilience when it grew by 4.6% in 2009, and 6.2% in 2010, credit ratings upgrade to investment grade in 2012, to headwinds in 2013 as the U.S. government scaled back its quantative easing. The bleak picture persisted in 2014 as presidential elections took place and investors waited on the sidelines. Last year was also not immune to investors’ jitters with only 18 companies listed on the exchange.

With all the difficulties, one cannot ignore the steady upward curve. Aggregate market capitalization of Indonesian listed companies has grown exponentially from $22 billion in the 1998 post Asian financial crisis to $420 billion in 2014. Indonesia’s ratio of market capitalization to GDP, a valuation measure that investors give to listed companies vis-à-vis the total output of the country, stood at 48% in 2014. This is still relatively low compared to Malaysia (140%), Thailand (115%), Philippines (92%) and Singapore (244%). This valuation underpins huge growth potential for Indonesia’s stock market. However, a boost to market liquidity is needed. IDX hopes to see 35 new listings in 2016. A number of Indonesian companies remain hopeful that the derailed IPO train will get back on track.

 

A successful IPO is one in which the sellers receive maximum value for their investment while giving due consideration to the need of a price-bump to benefit investors on day one (“first-day pop”). Furthermore, the newly listed company has to deliver its promises made during the investor roadshows. A failed IPO is characterized by the exact opposite: a disappointing price and poor performance. So the real question is: What makes a successful IPO? Successful IPOs do one thing – PREPARE. 

The most common reasons for an IPO are: to provide an exit for current shareholders, to finance innovation and growth and to increase visibility and credibility with stakeholders. The most common question is when is the right time to launch an IPO. An IPO window can open and close with the blink of an eye. External market forces are beyond a company’s control but preparation is not. The more prepared an organization is, the better the chances are for a successful IPO.

 

Top five tips for a successful IPO

Start with strong IPO leadership

Ensure that your IPO team has a strong leader in place. In most companies, this role is assigned to the chief financial officer (“CFO”), sometimes head of business development or corporate finance. For larger or more complex IPOs, an IPO steering committee is usually formed. A strong IPO leader should be clearly identified as he becomes the point of contact, both internally and externally, and will drive the whole process, achieve milestones, liaise with stakeholders, and take critical decisions.

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Support the effort with sound proj­ect management

Success depends on identi­fying issues and monitoring progress through effective project management. Without this, one part of the organization might not know what another is doing. Successful IPOs use appropriate resources to support the IPO leader to build the plan, monitor progress, identify issues and keep the process on track. IPO process often leads to increased work­load. External resources may be considered to carry out day-to-day tasks or to perform specialized functions.

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Perform a thorough IPO readiness assessment

A robust IPO readiness assessment is the first step in a successful IPO. It is vital to identify big-picture issues and prevent surprises later. The assessment, in the form of a questionnaire, will help to identify key issues and gaps to be remediated. At the end of the readiness assessment, a company will have a clear roadmap of how to get there, with recommendations and workstreams prioritized, responsibilities assigned and a timetable for remediation. The readiness assessment therefore becomes a starting point for the company’s transformation.

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Build a robust finance organization

Getting the right finance organization, with the right capabilities to deliver quality financial reporting at the right time, is an important factor in creating a successful IPO. We recommend a company to start acting like a public company at least one year in advance before filing its registration statement, focusing on reducing monthly financial closing process to a reasonable period and preparing quarterly financial information with a level of detail and accuracy of a would-be public company. It is also critical to develop a strong Financial Planning and Analysis function to accurately forecast earnings, track against guidance and deliver detailed projections needed for IPO valuation exercise. The first few quarters of life as a public company are critical. Inabil­ity to submit the required financial reports to regulators will be damaging to shareholder value and can compromise credibility. It is therefore important to build a strong finance organization with a repeatable process before getting in the spotlight.

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Think of a sustainable process

After the IPO kick-off meeting, the organization and all its advisors have their hands full with the offering document, meetings with bank­ers, the registration statement process, inves­tor slides and roadshow materials. Companies tend to place less focus on building a sustain­able process (e.g. investor relations, corpo­rate governance, audit committees, internal control, legal and tax). Once listed, a compa­ny will need to address ongoing compliance and regulatory requirements and will require staging in a carefully controlled manner to ensure each element is ready.

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The key to a successful IPO is being con­sistent throughout—solid economics, strong fundamentals and a well-prepared equity story that is easily understood. Although the IPO market is beyond control, companies that envision an IPO in their future can start now and give themselves the best possible chance for success when the markets open. As the saying goes, “A plan to fail is to fail to plan”

By: Jasmin Maranan - PwC Indonesia's Advisor
Forbes Indonesia Magazine Vol.7/ June 2016

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Jasmin Maranan

Jasmin Maranan

Advisor

Tel: +62 21 509 92901

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