Considering an IPO? Can you demonstrate financial stability?
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An IPO is a serious and time-consuming proposition. In order to even think about taking this step, boards need to understand the requirements placed upon them in order to attempt a listing – and be able to put the processes and policies in place to be able to meet ongoing compliance and governance requirements. Most of this advice also applies to Merger & Acquisition activity, where due diligence processes will focus on your financial stability.
The Role of finance in your IPO preparations
Stock exchanges and potential investors want to know that your company is a good investment. This is judged on a variety of criteria, including:
Of these, financial stability is often the most scrutinised. A business approaching IPO must demonstrate – before the listing process starts – that it has adequate controls and processes in place to meet the requirements of the listing market. These requirements vary between markets, so those in place in London will be different from those in Frankfurt or New York.
Of course, some companies may already meet these standards. But there are challenges for various types of business:
Fast-growing businesses?may have been concentrating on product and market, without paying too much attention to financial control. It may be using legacy systems, still relying on spreadsheets or have incomplete visibility across the business.
Complex businesses, such as those working in multi-currency environments or with intricate structures developed through M&A activity, may have survived by cobbling together existing finance systems and processes. This may create problems with accurate reporting and forecasting.
According to a report by?legal insights consultancy CapitalXchange: “Consideration of financial position and prospects procedures (FPPP) is critical in determining your company’s suitability for listing. You will need to have established systems, controls and procedures to enable you to achieve this. Your reporting accountants will need to prepare a private report on the company’s FPPP as part of the IPO process.”
It’s important to know that any sign of poor financial control or a lack of visibility over the internal and external factors that affect your company’s performance may result in a lack of interest from investors – or a failure to list at all.
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What are CFOs required to do?
In terms of listing on the London Stock Exchange, there are two sets of overall requirements: those that are part of the listing process and those for post-listing.
Disclosure document
Your listing depends on your prospectus or disclosure document. If you’re considering listing on the AIM market rather than a full listing, you will need to prepare an admission document instead.
This document will need to include consolidated financial statements for the past three financial years. These will need to be independently audited and be not more than six months old, depending on your year end and your target date for listing. Your advisers can guide you on this.
These statements will need to be IFRS-compliant and you will have to show that your financial procedures have been consistent during this time. These accounts are intended to show your financial track record to help investors make an informed decision.
NOTE: If you are considering an IPO and do not have consistent policies or procedures in place, you will need to spend time getting your systems and approach in order so you can meet this requirement.
How can we help?
Planning for an IPO is a complex and involved business. You need to be thinking several years ahead to make sure you can put your business in the best possible position to succeed. In terms of your finance team and the procedures it operates, now is the time to put technology in place that genuinely supports your ambitions.
We can help you transform the way your finance department plans, forecasts and reports –?contact us today?to?book an initial call.
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