Getting IPO-ready in 2024

A successful flotation is a major milestone for any ambitious company but the path to IPO-readiness is paved with challenges and careful preparation is crucial, write Ciara O’Callaghan Crehan and Eimear McDermott

The public markets are a bellwether for economic confidence at any point in time and we have witnessed a challenging period for equity performance and new issuances recently. 

While the public markets offer just one source of potential funding for a business, an Initial Public Offering (IPO) is seen by many as a particularly significant milestone for promising businesses and IPO activity as an indicator of wider economic health. 

There are numerous reasons why companies may want to list on a stock exchange. These include access to a new pool of capital to help take them to the next level, enhanced profile and prestige, a clearly defined business valuation and a route to exit for founders and shareholders.

Raising capital through the public markets takes time and lots of preparation, however, particularly in a period of prolonged economic uncertainty. 

Current IPO market conditions

The current IPO drought has persisted for more than 18 months, but this doesn’t mean pre-IPO companies should be inactive. Rather, we would suggest taking advantage of the current lull to prepare now for a public offering further down the line.

Already, we are starting to see the first green shoots of recovery. The third quarter of 2023 produced 36 IPOs that raised a combined total of about $8 billion. This was the same amount of proceeds raised for the full year in 2022 and was led by the largest tech offering in years, ARM, which raised approximately $4.9 billion.

In particular, we are seeing a growing number of large corporates opting to consolidate their market listings on – or undertake a general move to – US markets. While this is not good news for stock exchanges in Ireland or Europe, it demonstrates the continued dominance of the US capital markets for access to funding. 

The next wave of IPOs will be led by those companies that do the hard work of preparation today, readying themselves for amplified scrutiny and accountability and working to make the necessary corrections big and small.

Choosing the right stock exchange

Many factors play into the decision on where to list a company, including:

• Access to capital, which is critical – in many cases companies will decide to list on multiple exchanges to broaden their investor base;
• Market visibility and the reputation of the exchange, which may be known for a particular focus area;
• Liquidity and trading volumes;
• Regulatory requirements, which differ significantly across markets – the US capital markets are the most onerous from a compliance perspective but are more attractive to many stakeholders, from suppliers to employees and particularly to investors; and
• Expansion into new markets and peer group comparison.

What it takes for a successful IPO 

Any successful IPO needs a compelling equity story. In the current environment, IPO candidates need to be able to demonstrate a resilient trading performance and compelling strategy for future growth to tempt investors. 

It is also important that the valuation expectation is reasonable. With a particular focus on the US market, some of the key steps in a successful IPO journey include:

• Ensuring you have a first-class management team and advisors;
• Getting your IT systems and control environment in order;
• Improving your financial reporting and getting audit-ready;
• Addressing change through a people-centric transformation programme; and
• Addressing environmental, social and governance-related performance and strategy upfront.

It’s a team game

The path to becoming a public company depends on a coordinated team effort by management and external advisors. In our experience, which spans both sides, we believe there are several critical ingredients to success:

• An experienced management team, ideally with some IPO experience that can build a strong equity story during the roadshow;
• External advisors with IPO credentials, contacts and industry experience; and
• A structured transformation of the people, processes (with a particular focus on technology) and culture of the company.

IT capacity and controls

Companies should not overlook or underestimate the ‘heavy lift’ needed for readying their IT systems ahead of a planned IPO. Some of the IT systems and tools commonly used by private companies in many cases cannot scale to meet the technology requirements of a public company. 

Many companies face fundamental challenges in understanding their existing IT landscape and the interdependencies that exist between the different elements therein. 
This is particularly important because you cannot expect to achieve a robust internal control framework for financial reporting without a strong partnership between the IT and finance teams. 

It takes a coordinated approach – with informed, experienced leadership – to break down silos and ensure that everyone is speaking the same language. Getting the governance right at the outset is a prerequisite for successfully establishing and embedding your control framework.

Companies that have not historically invested in technology and tools for financial reporting and business operations might struggle with the limitations of their existing technology if this is not addressed as a priority at the outset. 

Assessing IT across people, processes and systems is critical. Taking a risk-based approach – and strategically sequencing your transformation initiatives – is equally important. 

Early in the preparation phase is the time to get the fundamentals right, and to ensure that each step of your transformation is aligned to your IPO target state. 

Companies should be incorporating audit and control requirements into their procurement decisions when looking at investment, alongside business, information security and other assessment criteria. 

Financial reporting and audit

The level of auditor scrutiny on public companies is high and ever-increasing. Therefore, getting your company’s historical accounting and controls in order is essential pre-IPO. 
As already mentioned, it is critical to have the right technology in place here alongside the right people – and to give them sufficient lead time to do the work needed.

In preparing for the rigours of an IPO, an auditor may have to re-audit parts of prior years’ accounts and update procedures to meet the higher standards expected of a public company. They will likely have to update controls and processes and document all key controls. 

It is an arduous process and one that cannot be rushed. Early engagement with the audit team is important. 

In our experience, bringing your auditor into the fold at agreed milestones can be hugely valuable in ensuring continuous alignment and avoiding any unexpected curveballs as you navigate the IPO journey.

Tailored people-centric approach

An IPO journey will have its challenges. It requires major transformation involving upgrading technology, improving financial reporting processes and implementing governance, risk and compliance capability. All are critical. 

So too is a people strategy that sets out the vision for a collaborative and supportive post-IPO culture incorporating diversity, equity and inclusion as well as helping to guide how the business plans to achieve its environmental, social and governance (ESG) goals. 

And finally, ESG

As ESG continues to gain momentum, it is becoming a fundamental consideration for companies making strategic decisions in areas including funding. 

Integrating ESG reporting into the equity story has become key for investors and, consequently, it is an increasingly important aspect of the IPO readiness plan for issuers. 

This is especially true in Europe where regulatory requirements for listed companies will become mandatory as the European Union’s Corporate Sustainability Reporting Directive (CSRD) comes into effect. An ESG strategy is now a must-have for any company considering an IPO. 

Becoming a public company and raising funding on the capital markets has always required lots of work and preparation. 

Alongside a company’s equity story, financials and governance, there is now a broader focus on technology, culture and people strategy as well as ESG commitments and performance.

The current market lull could provide just the ‘pause’ some companies need to prepare thoroughly for a successful flotation and future growth.