Should Your Company Go Public?

Go Back to Searchlight Q2 2012


Lisa Thompson, Managing Director, Professional Services lisa thompson

Recently, Facebook launched one of the most publicized initial public offerings in history only to fall flat on its face, perhaps due to unrealistic expectations, bad market timing or the way the offering was handled. It’s certainly a cautionary tale for any company considering going public.

Last year, several expert panelists at one of Pearson Partners’ quarterly “Spotlight Breakfast” events took a close look at the best practices for taking a company public. They emphasized the importance of early planning—sometimes years before an IPO is even contemplated. That’s because it’s critical for a company to have the right systems, infrastructure and processes in place to meet the expectations of investors and analysts.

For example, it’s important to have robust management reporting, budgeting and costing systems to meet analyst expectations right out of the gate. Once a company is public, resources must be dedicated to fulfilling the company’s obligation to its shareholders as well as compliance with Sarbanes-Oxley and other government regulations and financial reporting requirements. Of course, the management team must have the right focus and the skills to lead a company in the public sector.

Since going public is expensive—about $5 million to prepare a small company for an IPO, and about $2 million a year thereafter—an IPO needs to be done for the right reasons, such as financing a long-term growth plan, rather than seeking a quick infusion of cash. Market timing is also important because it’s difficult to succeed with an IPO if investors are feeling bearish. If all the internal reporting and control processes are in place, an IPO can be delayed until market conditions improve.

Finally, a company that’s considering going public should focus less on the price of shares and more on making effective decisions. This may be one of the reasons for the problems surrounding the Facebook IPO, although it may take time to determine just what went wrong. In any case, a private company should prepare the groundwork, develop solid corporate governance practices and have a strong story to tell potential investors. That’s the best recipe for a successful IPO.

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