How Far in Advance Should You Plan Your IPO?

Much has been written about the time it takes to file an Initial Public Offering. Often overlooked is the pre-file planning which can take as long as many years.  So, how far in advance should you plan your IPO?

The short answer is you should prepare as much as 36 months in advance.  While the tail end of this preparation period will be consumed with the formal filing preparation including negotiating with bankers, compliance, road shows etc., much of the early preparation involves ensuring that your company has the needed structure and resources to be successful come filing time.

The following recommendations should be considered a minimum of two years prior to filing:

 #1 Hire a CFO with real public company experience

The required skill set of a high growth private healthcare company CFO is significantly different than that of one which is public.  It is paramount that you hire a CFO that has public company experience and ideally has previously survived the IPO process, soup to nuts.

Public company CFOs need to focus their efforts on making internal controls part of every single day and must be familiar with the requirements of the Sarbanes-Oxley Act of 2002 and the Jumpstart Our Business Startups Act of 2012 among other key regulations. Learning such nuanced elements of the process on the job is an IPO killer.

#2 Build systems early and integrate into your normal processes

As the old M&A adage goes - ‘Build it today like you are selling it tomorrow.’.  Something similar can be said about IPO prep.  

Companies should develop the needed systems, in particular financial controls as early as possible.  This most commonly serves as a mechanism to purge any problems with systems or controls that exist far earlier than may otherwise be possible.

CFOs will need to address gaps in controls by completing a risk assessment, and should also finalize disclosure processes, which is the quarterly equivalent of the Section 404 yearly disclosure, as early as possible. Additionally, by adopting proper systems and processes into your month and quarter end periods your team can ‘practice’ working within a simulated post IPO environment.  This experience can help ease the shock of the formal process changes post IPO.  

Prior to completing a successful IPO you will be required to do this work.  Preparing in an environment that affords you the needed time and focus to do so correctly will pay future dividends.

#3 Build a board with public company experience

The strength of your board of directors can significantly impact the success of your future IPO. Be sure to recruit members with public company experience who can directly support the growth of the business.  Board members with specific skills needed post IPO are also preferred (like someone to sit in as the audit chair, for example).  While initial pricing is based on many other factors, do not discount the idea that your board can directly impact the interest in and price of your IPO in a very real way.

#4 Address the costs early on

Running an IPO process carries significant costs.  Understanding these costs and budgeting for them as far in advance will ensure that they do not become burdensome in mission critical times.  All IPOs have both a fixed and variable cost component.  While the variable cost piece is paid from proceeds, the company filing will have to carry all fixed costs including listing, legal, underwriting, due diligence.  These fixed costs can range from hundreds of thousands to millions of dollars depending on the company, so plan accordingly.

While there is no exact timeline for advanced IPO preparation, the sooner you start the process the easier it will be during the challenging, time intensive and costly months that immediately precede your offering.  

Is your healthcare EGC considering an IPO? If so, please do not hesitate to contact US. Our team has global reach, deep expertise and is dedicated to exclusively serving companies like yours.  Lean more about us at www.healthios.com