Sponsored Deloitte: Why now could be a great time to start preparing for an IPO

No question about it—2021 was a banner year for initial public offerings.

Nasdaq data indicates 1,033 IPOs last year, more than double 2020’s 471.[1] As we move further into 2022, the market has slowed considerably. In the first quarter, only 95 companies filed initial public offerings as opposed to 419 in the first quarter of 2021[2].

The IPO market is expected to perk up when geopolitical tensions ease, inflation moderates and interest rates settle. In the meantime, companies considering a public offering can prepare for more favorable market conditions and for that exciting event in an organization’s life.

In 2021 Deloitte served 51% of U.S. IPOs, including 16 of the top 25 IPOs (ranked by proceeds raised), 65% of public offerings that raised $1 billion or more, and 63% of unicorn IPOs.

From that experience comes four suggestions for companies planning to take the IPO path once market conditions are favorable:

Build your team. Focus on efficiency and effectiveness of your close process. Leverage technology and artificial intelligence (AI) to streamline your process. Solidify your corporate governance.

Here are the details:

Build your team

A successful transition to a public company requires a great team that’s prepared to lead what the company will become, in addition to what it is pre-IPO.

The importance of exceptional talent cannot be overstated. It’s also much more difficult in this tight labor market to find the right people to take the IPO journey with you. In fact, organizations are leaving positions unfilled until the perfect candidate, preferably one with public-company experience, materializes.

Top-shelf compensation packages, which will likely need to be examined to manage existing and new equity incentives, can attract the right players. Human resources departments should consider compensation, disclosure and analysis (CD&A) reporting requirements; the CD&A is the way companies tell their compensation stories to investors.

Companies should also examine internal talent to identify future leaders, discern the skills and experience they’ll need to grow the company, then develop a leadership pipeline and succession plan. This includes personnel for both the front and the back office, and a focus on compliance and financial management.

Financial planning and investor-relations talent, meanwhile, is a must as a company prepares to go public.

More likely than not, a company’s business objectives and goals will shift once it is listed; a new operating model and organizational structure may be necessary to navigate that change.

Focus on the efficiency and effectiveness of your close process

A huge difference between being privately held and publicly listed: the detail and sheer importance of financial reporting. Companies need to close books quickly each quarter and provide accurate financial reporting to the Street.

In short, there’s a lot more scrutiny from a much bigger audience. The typical preparation for this includes two quarterly dry runs of closing and reporting financial results.

To meet those needs, companies readying for an IPO will have to examine their current close processes—and that includes both people and technology —and figure out how to optimize them for speed and accuracy.

The keyword here is streamlining. The process and the systems for reporting requirements, as well as budgeting, planning and forecasting, that work well at a privately held firm may not be streamlined enough to meet the time demands of a listed company.

These processes need to be examined. Any bottlenecks need to be removed.

Another consideration is Sarbanes-Oxley (SOX) and other internal control requirements that must be implemented in accordance with Public Company Accounting Oversight Board, or PCAOB, standards.

Employ tech and AI to streamline your process

This is the time to switch to contemporary and leading-edge technology.

“Using spreadsheets as the cornerstone of your financial processes today is the equivalent of using graph paper and a pencil 10 years ago,” says Bradley Niedzielski, Audit & Assurance Partner and Tri-State Digital Transformation Leader, Deloitte & Touche LLP.

Robotic & Intelligent Automation (R&IA) is a combination of artificial intelligence and programmable software.

There’s a misconception that R&IA can cost millions of dollars and take several years to implement, Niedzielski says, but in reality, it can cost only thousands of dollars and can be up and running in a matter of weeks.

“Think of R&IA technology as ‘macros on steroids,’” Niedzielski says, noting the faster and stronger processing power of R&IA.

Automation tools such as R&IA are digital assistants that can provide humans with superpower processing speeds, he adds. In addition, he says, automating repetitive and mundane tasks frees up financial professionals to apply their skills to strategic and value-added initiatives for the company.

There are risks and factors to think through, though. Instituting R&IA or any other new financial technology involves embracing change, training on the new technology, making decisions about legacy systems, and recognizing the need for stakeholder commitment and governance.

Solidify corporate governance

A talent-stuffed boardroom and audit committee are key to a successful IPO. And like sourcing leadership talent, it’s neither a quick nor easy process. Given the hundreds of companies that completed an IPO or special-purpose acquisition company (SPAC) transaction in the past two years, filling board and audit committee roles has become a more nuanced process, particularly when companies are sensitive to diversity and inclusion.

The lesson? Start the process to fill these critical roles a year—not the traditional three months—before an IPO. Companies should also do their homework; board composition and structure have requirements dictated by the chosen listing exchange as well as stakeholder expectations. Additional management committees and charters may be considered.

Deloitte’s Center for Board Effectiveness can be a resource. The Center helps directors deliver value to the organizations they serve through a portfolio of high quality, innovative experiences throughout their tenure as board members. Whether an individual is aspiring to board participation or has extensive board experience, the Center’s programs enable them to contribute effectively and provide focus in the areas of governance and audit, strategy, risk, innovation, compensation and succession.

Preparing for an IPO can typically take nine months to a year. The current slower IPO market offers an ideal time for companies with an eye on the New York Stock Exchange or the Nasdaq to take these important steps toward a smooth and successful initial public offering.

Please see www.deloitte.com/about to learn more about our global network of member firms.

[1] A Record Year for IPOs in 2021 | Nasdaq
[2] ANALYSIS: IPOs Hit Skids; Has Market Reached SPACuration Point? (bloomberglaw.com)

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. 

Please see www.deloitte.com/about to learn more about our global network of member firms.

Copyright © 2022 Deloitte Development LLC. All rights reserved.


Christin Hakim

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