The road to an Initial Public Offering (IPO) is a long one but, with some careful preparation, there are certain steps companies can take to make the journey as smooth as possible.
Joe Notaro, Accounting Advisory Partner with Forvis Mazars recently joined John Bagdonas, Business Development, J.P. Morgan Workplace Solutions to discuss the pertinent topics, including the impacts on financial reporting, equity compensation and internal controls for private companies prepping for their IPO.
You can listen to the full webinar here.
The main takeaway is that when preparing for an IPO there are two very important rules-of-thumb:
- it’s never too soon to begin looking into the process, and;
- you can never have too much help.
Private companies have been waiting and watching the market for the right moment to launch their IPOs. In 2021 there were 416 traditional IPOs raising $155.8 billion, followed by a pause, before 2024 saw an uptick in IPOs and related activity, especially in the healthcare and tech industries.
How long does it take to IPO?
Companies eyeing an IPO should know it can take 18 to 24 months to complete. Many of those waiting for opportune market conditions will already be deep into preparation – but it’s never too soon to start. You will need to determine what route you want your company to take on entering the capital markets, as there are different requirements, e.g. filing necessary documents with regulatory bodies like the Securities and Exchange Commission (SEC) in the US.
Be clear on why you want to go public—whether that’s to raise capital or expand—and build your company’s value narrative around that.
Should you get a pre-IPO gap assessment?
This is crucial. An IPO readiness gap assessment is where an outside firm comes in to conduct interviews at the C-suite level. These reports really drill down into a company’s processes, systems and people. It’ll look at accounting, financial reporting, human resources, legal infrastructure and more. The volume of action items will vary by organization.
What other third parties can help with IPO preparation?
Don’t underestimate the need for experienced third-party partners. IPOs are complex, and specialists can help you to navigate the process. As a public company, you’ll face new SEC requirements for audited financial statements. Choosing the right external auditor is critical. Getting your first Public Company Accounting Oversight Board (PCAOB) audit done a year before going public is generally considered best practice.
Tax expertise is always important. You should also look to engage a valuation expert, especially if issuing stock-based compensation or preferred stock, or entering complex transactions and with the potential for an increased headcount in accounting and finance departments. Also, identifying a Chief Financial Officer (CFO) is essential.
Review your HR systems ahead of an IPO
Reviewing systems is key in IPO readiness. As a public company utilizing software solutions will help streamline reporting and other time-consuming tasks. Many startups and early-stage companies handle equity plan administration internally, using spreadsheets or cap table management applications, but over time this can become impractical, as plans become more complex and financial reporting obligations increasingly scrutinized.
Form S-1 is the typical registration statement for an IPO. Roles and responsibilities for each required section should be assigned. Legal normally handle risk factors, while accounting teams typically manage financial statements. Management and legal usually work through areas like the business overview and business drivers.
What about existing equity awards?
The pre-IPO period is a chance to revisit equity compensation awards. Your overall offering including vesting, exercise and forfeitures for post-IPO handling should be reviewed. It’s important to devote time and resources to equity compensation plans pre-IPO, as they tend to be handled differently post-IPO.
Your law firm or a compensation consultant firm are great resources to help draw up these plans and to learn the financial and tax pros and cons for the company and your employees.
What next?
At J.P. Morgan Workplace Solutions we help businesses of all sizes and stages manage their equity award administration. Get in touch today to find out how we could assist with equity design and management at this crucial time.
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This publication contains general information only and J.P. Morgan Workplace Solutions is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. J.P. Morgan Workplace Solutions’ Insights is not a substitute for professional advice and should not be used as such. J.P. Morgan Workplace Solutions does not assume any liability for reliance on the information provided herein.
