A thorough legal clean up of the company several months in advance of going to market removes the risk of having your dirty laundry open for public inspection.
Management often underestimates the time required to ensure all key supply contracts are bedded down and any litigation is settled well ahead of listing.
If your business plan is reliant on long-term relationships with customers and suppliers, those relationships must be tied down in document form. If you’re involved in litigation, settle it, delay it or get rid of it.
The legal requirements of a prospectus force directors to disclose all of the company’s material contracts. This can prove to be a double-edged sword for many private companies.
If you can disclose a long-term arrangement with a key customer, that’s very attractive to potential shareholders.
However, you don’t want to be in the position of having to disclose a significant customer contract that is not legally tied down or any messy enterprise bargaining agreements – these don’t provide any comfort for the market.
Investors remain highly sensitive to any hint of future difficulties for a company looking to raise funds. You only get one shot at listing and if you don’t get it right, your company’s reputation may be forever tarnished.
It is not only embarrassing from a corporate perspective but also very costly to have to prepare a supplementary document to correct information in the original prospectus.
Most companies severely underestimate the non-financial cost of preparing for listing on the stock exchange. Such a process generally requires the Chief Financial Officer and the Chief Executive Officer to spend between 60 and 80 percent of their time on the matter for at least 12 weeks.
Companies with their ‘house in order’ can take as little as three months to prepare for listing.
More often than not, companies start the process and uncover a hidden disaster that needs urgent attention, or dealings with financial analysts on the issue get complicated and the timeframe blows out. Ideally, any company considering the prospect of a float should seek legal advice about 12 months ahead of the target date.
Despite the time involved in preparing a company for an IPO, the process is highly beneficial for a firm, even if it does not proceed with the listing.
At the end of the process, some directors find they’ve got the business in such good shape that they don’t want to fl oat anymore, or they want to attract private equity instead and retain some control of the company.
ESSENTIAL CONSIDERATIONS FOR PRIVATE COMPANIES LOOKING TO LIST ON THE ASX
- Firstly, determine if listing is right for your company. Weigh up the pros and cons.
- Is the market timing right? Seek guidance from your financial adviser.
- Is the company ready? Ensure there are no latent legal issues. Many companies ‘tidy up’ their business with the assistance of lawyers and a pre-listing due diligence committee.
- Is the Board ready? Does the Board fully understand the process, expectations, personal insurance implications and time commitment required? Market perception of the Board and CEO is also vitally important.
- Ensure processes are in place so the company can run smoothly when key management’s attention is diverted during the listing process.
- Choose your advisers carefully. Lawyers, financial advisers, brokers, accountants, underwriters and public relations professionals all have a major role to play.
- Is the company structure ready? Taxation issues, employee remuneration, share plans and shareholder spread must all be considered.
- Use public relations to get your message out to investors, media and analysts.
Loretta Reynolds is a partner at commercial law firm Thomson Playford.
