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ENTREPRENEUR’S GUIDE
STARTUP SCALEUP IPO
ENTREPRENEUR’S STA
RTUP | SCA
LEUP | IPO
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1
32SETTING SAIL ON YOUR IPO JOURNEYKPMG
Cecily Conroy, Head of Equity Capital Markets, Australia
Going public is a huge decision for any company. It is a complex, costly and time-
consuming process that places enormous demands on a company and its management
team. There are many advisors to manage, meetings to attend and tasks to complete,
frequently under significant time pressure. Management will be heavily involved in
preparing the business for the initial public offering (IPO), yet will also need to maintain
focus on the day-to-day operations and continue to deliver on the growth strategy.
REALISE THE IMPORTANCE OF EARLY PLANNINGIn addition to facing the challenges just mentioned, making the transition from a
private company to a publicly listed company is also likely to result in significant
changes to how your business operates.
The effort can be worth it. An IPO can prove transformative, giving you access to a
deep pool of capital to propel your business forward. The company will also have
been placed under a microscope, giving you an opportunity to critically examine
your business.
In this regard, early planning and preparation are key to achieving a successful IPO
and a smooth transition to being a listed company.
KNOW YOUR OBJECTIVES FOR LISTINGA company may pursue an IPO for many reasons. Before commencing formal IPO
preparations, identify your objectives for the IPO and ensure that they are reflected
in your IPO strategy.
Ask yourself the following questions:
• What are your main reasons for listing? For example, if a main reason is to enhance
the profile of the business, how will your IPO strategy help you to achieve this?
• How much money will be raised at IPO? Will the proceeds be used by the company
or be distributed to existing shareholders, or will you use a combination of both?
How will the company deploy the proceeds, and does this tie into your equity story?
• When is the optimal time to become a listed company? Also consider the
prevailing equity market conditions and investor sentiment towards listed
companies in your sector.
• Have any other companies in your sector or with similar businesses floated? How
did they fare? Can you learn anything from their processes?
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APPLY A CAPITAL MARKET LENSIt is important to look at your company through
an equity capital market lens. In other words,
apply the same level of scrutiny that the
investment community (e.g., public market
investors, research analysts, investment banks
or brokers) will apply to your business while
preparing for an IPO and once your company
becomes a publicly listed company.
It can be helpful to meet with one or two
friendly institutional investors to hear their
thoughts and perspectives on your business.
You should be well prepared before meeting
with any investors. Avoid disclosing any specific
financial information and do not leave behind
any presentation materials on your business.
Ask yourself:
• What is your equity story? Will your business
appeal to public market investors? Are there
any themes that might concern investors and,
if so, how can these be mitigated?
• What are the key drivers of value? How will
the company be positioned relative to other
listed comparable companies, and how can
you positively differentiate it?
• How will you give investors confidence
in your ability to deliver on the growth
strategy? What key performance indicators
(KPIs) will demonstrate positive momentum
in the business in the lead-up to the IPO?
Can these KPIs be made available to the
market on a regular basis once the company
is listed?
• How will the strategic decisions you make
today shape your ability to list in the future?
• How will you engage with the investment
community before commencing formal IPO
preparations? Determine how early, with
whom and what should or should not be said.
START PREPARING THE BUSINESS FOR LIFE AS A LISTED COMPANYYou should evaluate your company’s readiness
to commence formal IPO preparations and its
ability to meet the obligations of being a listed
company. Management and the company
could benefit from operating with a listed
company mind-set well before actually going
public.
Ask yourself:
• What changes are required to be ready to list?
Identify the items that may take a longer time
to complete, such as corporate restructuring,
presentation and audit of historical financials,
board and management changes, governance,
systems and controls.
• Does management have the time to prepare
for an IPO and continue to successfully
manage the company? The period in the
lead-up to the IPO is certainly not the time for
management to take its eye off the ball.
• Have you identified the ‘red flag’ items that
could delay your IPO timetable or affect value
or investor demand?
• Are you tracking information (such as KPIs)
that will support your equity story and give
greater confidence to investors?
You may discover early issues that need
addressing before you can even start to think
more deeply about an IPO.
APPOINT THE RIGHT TEAM OF ADVISORSCompanies often underestimate the effort and
resources required to prepare for an IPO. An
IPO requires a huge commitment from both the
internal deal team as well as the external advisory
team—both of whom need to work closely
together. Choose an experienced team of advisors
to help your company prepare for an IPO, and
have a strong start to life as a listed company.
Appointing the right team of advisors (in
particular, selecting the right lead manager) can
have a direct bearing on the success of your IPO.
Ask yourself:
• What advisors do you need to appoint to help
you prepare for an IPO?
• Who is best positioned to advise your
company?
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• When and how should you appoint your
advisors?
ADDRESS OTHER CONSIDERATIONSTwo fundamental success factors are commonly
highlighted by companies who have been
through the IPO process. These are:
• dedicating time to developing your equity
story early on
• appointing the right lead manager to market
your IPO to investors.
Many challenges and complexities are involved
in each of these areas, so we will dive into each
area in more detail in the next sections.
DEVELOP YOUR EQUITY STORY
Why is it important?An equity story is your rationale for why
investors should buy shares in your company.
Some people call it an ‘investment thesis’, others
a ‘sales pitch’.
You must develop a clear, differentiated and
accurate equity story that makes a compelling
case for why investors should back your
company (Figure 1).
Importantly, to achieve a successful IPO, your
equity story must appeal to public market
investors. If you have previously raised private
capital from angel investors, venture capital firms
or other private investors, you may need to refine
your equity story to draw out the investment
attributes sought by public market investors.
A strong equity story drives investor
engagement and demand and will also influence
an investor’s perception around the positioning
of your company relative to listed peers. It
is critical in maximising value, achieving a
quality shareholder register and ensuring a
healthy aftermarket. It is important to consider
management’s ability to present that equity
story credibly. It may be that management
needs to rehearse or even change some
members of the management team so that they
are suitable for the public market.
FIGURE 1. Common characteristics of a strong equity story
Your equity story needs to be:
Clear: Make it easy for investors to understand your business model andwhat is driving growth.
Compelling: Remember, this is a sales pitch. Spell out why your business is an attractive investment opportunity.
Differentiated: Articulate how you stand out from your listed peers.
Convincing: Back up your story with evidence of substance. Use financial data, nonfinancial key performance indicators and credible industry data.
Accurate: Do not try to 'borrow' attributes from other companies that donot fit your business model. You will need to deliver on your story oncelisted.
Delivered with conviction: Avoid last-minute changes. Retain control of yourequity story and convey it to investors with confidence and conviction.
Believable: It is very tempting to try and 'big up' your story for the IPO. Resist this temptation because promising too much before IPO can lead to problems delivering on that promise when the first set of results comealong. That letdown is difficult to recover from.
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The equity story itself will evolve throughout
the IPO process and is the blueprint for key IPO
documents. It underpins the lead manager’s
preliminary IPO valuation, the presentation for
research analysts and institutional investors,
and your prospectus. It will form the basis of
certain due diligence enquiries from banks,
lawyers and accountants. Ultimately, your
equity story will determine whether an investor
participates in your IPO. Developing your equity
story is therefore one of the most important
workstreams in your IPO process and requires
an early focus from management.
Where should you start?Start preparing your equity story very early
in your IPO preparations, and certainly well in
advance of appointing a lead manager.
Gather your business plan, corporate strategy,
board papers, marketing materials, KPIs,
research and development program and other
key internal documents relevant to your strategy
and company’s track record. Reflect on where
you have come from as a business, and where
you are going.
Identify the key value drivers of your business
and any potential weaknesses or risks that may
affect valuation or investor appeal for your IPO.
Be sure to do the following:
• Articulate your key achievements and the
positive attributes of your business model. For
example, you may be a disruptive player or be
using proprietary technology.
• Consider your positioning. Investors will
compare your business to other similar
companies listed on both domestic and
potentially international stock markets, so it
is important that you positively differentiate
your business; make a strong case for why
they should invest in it.
• Look carefully at your financials, operations
and growth prospects relative to your listed
peers.
• Consider what financial and nonfinancial
information you can provide investors to
support your equity story and give greater
confidence to investors.
Create a first draft with the key ingredientsCommon areas of focus for an equity story
include the following:
• Company platform and maturity: What is
your business model and strategy? Is it
unique, and is there a demonstrated demand
for your product/service offering? What
has been achieved so far? What are the
attractive attributes of your business model
(e.g., disruptive player, high barriers to entry,
market leader or proprietary technology)?
How mature is your business model (i.e., do
you have clear proof of concept, visibility
of revenue and predictability of earnings
potential)? Is there a reasonable operating
history? Does the business have good
systems and governance in place?
• Addressable market and opportunity: What
is the size of the addressable market? Are
credible industry data available that can
be used to educate investors? What is your
market share and competitive positioning?
Can you maintain your competitive advantage
as you grow? What is the geographic reach?
• Financial and operational profile: What is your
revenue and earnings track record? What are
your margins, and how will they change as
your company grows? Do you have a track
record of delivering growth? Is this growth
sustainable in the medium term? What is
your cash conversion? Are you profitable,
or is there a clear path to profitability and
improving operating leverage? Are your
operating metrics (e.g., cost of customer
acquisition, customer numbers and churn)
improving? Do you have a sticky customer
base?
• Future growth prospects: What are your key
pillars of growth? Is your growth trajectory
sustainable? Will future growth be organic
or acquisition-led? How will you continue
to grow your margins? How do you plan to
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capitalise on your existing position, cross-
sell to existing customers, enter adjacent
markets/geographies, etc.? How will you use
your IPO proceeds?
• Management capability: What is the
background and experience of your
management team? Do they have a proven
track record in management and leadership?
Articulate your story to investorsThe chief executive officer and chief financial
officer must be able to convey the company’s
story to investors during roadshow meetings
with genuine confidence and conviction because
investors are ultimately backing the management
team to deliver on the company’s growth
strategy. Management’s ability to do so will have
a direct bearing on demand and valuation.
Poor planning can result in an equity story
changing at the eleventh hour before launching
the IPO. This situation could undermine
management’s ability to deliver the story
with conviction and may result in investors
misunderstanding the business model or value
proposition or lead to inconsistency in how
investors value the company.
Update your website and other marketing materialsOne of the first things a potential investor will do
is look at your website. As you craft your equity
story, also consider updating your website and
other marketing materials to reflect it, to ensure
you are putting out a consistent message. Be
sure to do this well before commencing formal
IPO preparations.
APPOINT YOUR LEAD MANAGERAppointing the right lead manager is key to
achieving a successful listing and your start
to life as a publicly listed company (Figure 2).
The lead manager role is performed by
an investment bank or broker who will be
responsible for managing the offering and
marketing your IPO to investors. The number
of banks appointed will vary depending on the
amount of equity to be raised at IPO.
Understand the appointment processIt is common in Australia for a company to
select a lead manager following a competitive
appointment process, also known as a ‘beauty
parade’. This task would usually involve a
company identifying a shortlist of suitable
banks and inviting them to submit a written
proposal that outlines their credentials, views
on the IPO and fees. Each bank is subsequently
invited to ‘pitch’ or present their views to the
company’s executive team and shareholders.
A competitive process can provide a company
with the opportunity to hear from a range of
different banks and consider the personal fit
with their internal deal team. It also gives the
company the ability to compare the capability
of each bank on a consistent and transparent
basis.
In certain circumstances, it may be
advantageous to avoid a broad process (which
could leak into the media) and instead run a
hybrid appointment process. For instance, the
company may have previously met with several
banks and understands the capabilities of each
bank, one or two banks may be standouts or
confidentiality is critical to the company. An
independent financial advisor can also assist
with bank negotiations to deliver competitive
tension outside of a formal competitive
process.
Make first impressions countThe appointment of a lead manager is usually a
‘two-way’ process. That is, while the company is
considering which bank to appoint, each bank
is also determining whether to accept the lead
manager role. First impressions therefore count!
The company’s executive management and
shareholders should consider how to succinctly
communicate the company’s equity story as well
as the rationale for listing well before meeting
with the banks.
As part of the appointment process, the
company will also need to provide the banks
with an overview of the business, explain
the strategy and growth prospects, provide
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certain financial information and demonstrate
the strength of the management team. This
information will form the basis of their indicative
valuation and preliminary recommendations
in relation to the IPO. As with any third party,
you should carefully consider what confidential
company information you share and with whom
you share it.
Maximise your negotiating leverageA company’s leverage to negotiate favourable
terms with the banks is highest ahead of
formal appointment. It is often beneficial to
agree as much as possible with the banks
before you confirm their appointment, either
verbally or in writing.
FIGURE 2. What to consider when selecting a lead manager
The criteria for selecting a lead manager will vary for each company. However, someof the common considerations include the following:
quality and experience of the individual team members and senior-levelcommitment; rapport with the company and strength of existing relationships
track record, relevant credentials and distribution capability (both institutional andretail)
sector expertise, understanding of the business and how best to present the equitystory to investors, approach to valuation and positioning
depth of existing research coverage universe in your sector as well as knowledgeand credibility of research analysts (e.g., rankings)
proposed fees and engagement terms
ability to support the company and, if relevant, facilitate an exit for the majorshareholders once listed.
If the company is appointing more than one bank, it is important to ensure that eachbank brings complementary strengths to your IPO process. For instance, one bank mayhave excellent sector expertise whereas another may have a stronger distribution platform.
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KPMG
Tower Three, International Towers Sydney,
300 Barangaroo Avenue,
Sydney NSW 2000
Tel: +61 2 9335 7000
Web: www.kpmg.com.au
CECILY CONROYHead of Equity Capital Markets, Australia
Email: [email protected]
Ms. Conroy is the National Head of Equity
Capital Markets (ECM) Advisory at KPMG. She
provides strategic and tactical advice to clients
on raising equity in the global capital markets,
such as helping private companies prepare
for and execute an IPO, listed companies to
raise new equity or strategic shareholders
to monetise a stake in a listed entity. She
has advised on a broad spectrum of ECM
transactions raising c.A$50 billion across
Australian, New Zealand, Asian, European
and U.S. equity markets. Her deal experience
spans a diverse range of sectors, deal types
and deal sizes, including a number of landmark
transactions. She has specialised in ECM and
corporate finance for the past 15 years. She
brings a unique perspective to a client’s internal
deal team gained from her deep experience
as both an independent equity advisor and
an investment banker in the ECM division of a
global investment bank.