IPO INSIGHT: IPO Readiness
What’s in store for the publicly traded and their future in M&A
December 5, 2011
For this week’s column, I sat down with Don Duffy, the president and co-head of Integrated Corporate Relations’ shareholder activism transaction practice, to get the skinny on the trends he’s seeing in the IPO market. Duffy has more than $100 billion worth of IPOs and M&A deals under his belt. He advises executives who are interested in taking their companies public, providing guidance for road shows, compliance issues and selecting an underwriter, as well as introducing companies to potential investors.
Mergers & Acquisitions: What kind of trends are you seeing in the IPO scene right now?
Duffy: The bigger trend is not so much what’s in the market today but what’s not in the market. There are a lot more companies that are pursuing what I would call IPO readiness. Historically, the approach of private companies that wanted to go public would start the process and six to 12 months later a registration statement is filed. Today the message is, “Lets be ready.” If the markets are good, and companies feel like they need access to capital, they can go right away.
We are seeing companies spend the money earlier. They are hiring accountants and legal advisors earlier so they are prepared to access the capital markets if they wanted to and if the timing was right.
Mergers & Acquisitions: What are the key signs people should pay attention to?
Duffy: Visibility is probably the best proxy. Look at the industries of companies that are rumored IPO candidates. You look at what type of visibility they have and whether that’s changed. Look at Dunkin’ Donuts, it’s a brand that we all knew, but it was highly visible prior to its IPO. It wasn’t as if people had to ask if Dunkin’ Donuts was going to go public. It was a matter of when. You can take that up exponentially for the social media space because a lot of those folks are commenting on the record regularly. If you think about the company doing a dual track it is beneficial to be visible for both purposes because you really potentially open up to a broad audience you can sell the business to.
Mergers & Acquisitions: At what stage are companies going public these days?
Duffy: As a rule of thumb, the market tends to like deals that will issue at least $100 million worth of shares because that is the minimum amount of liquidity threshold to get larger institutions interested. But that doesn’t mean that you can’t do smaller deals. In fact there have been smaller deals that filed.
Mergers & Acquisitions: Growing through acquisitions, is it vital to a new publicly traded company?
Duffy: Besides the fact that you would need a partner who would want to engage in a deal, acquisitions, as opposed to organic growth, requires a unique level of execution. They are unpredictable in the sense that you can’t control timing. It’s not something that people will give you the benefit of from a valuation standpoint. They are generally viewed as being riskier. Probably that risk factor section in the Yelp document spoke to that. (For more on Yelp, see last week’s column.) There are executions risks with any deal are considered a little unique to organic growth. Even if it’s a unique part of your overall strategy you have to make an argument in the offering to investors as to why it makes sense.
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