Written by Edgar Agents on September 5, 2018
As discussed in our previous blog post, the process of assembling an external advisory team should begin well in advance of the IPO launch date. It is generally made up of an array of professionals from fields as diverse as investment banking, legal, public relations, marketing and accounting. The external advisory team should have experience with the IPO process, an existing network of contacts and knowledge of the company’s industry. It’s also critical that the team shares similar long-term goals for the company.
Key IPO Advisory Team and Responsibilities
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Corporate governance and a board of directors
All of the major stock exchanges require a registrant to have a majority of independent directors on its board. One of the best sources of objective advice can come from an independent or outside director. As with every other element of the IPO journey, a company should seek qualified board members well in advance of the IPO launch. A potential board member who is unfamiliar with a company may be reluctant to join the board immediately before an IPO since a director has personal liability for information contained in or omitted from the registration statement.
An EY survey revealed that recruiting qualified independent board members was the greatest corporate governance issue faced during the IPO process.
Choosing an investment bank
Of all the external advisory professionals involved in an IPO, the underwriter is potentially the most important. While no company is obligated to use an underwriter to go to market, garnering their expertise has its advantages. An investment bank can ensure an IPO will be properly managed and successfully marketed. Investment banks also have an instinct for timing an issue, and they can often anticipate pitfalls and calculate risks. The size and scope of a company and its offering will, in part, determine the size of the underwriter it will need to enlist for its IPO.
Other characteristics to look for when choosing investment bankers include the candidate’s likeability, communication style and trustworthiness. It is also important to find an investment banker that specializes in businesses or industry segments similar to that of the IPO candidate, and one that has proven experience in underwriting IPOs.
Regulatory compliance: The financial health-check
The process of going public will necessitate a fundamental shift in financial reporting and planning. IPO candidates will need to comply with the local regulatory requirements for their respective exchange. In the U.S., this means compliance with both the federal Sarbanes–Oxley Act and local U.S. GAAP accounting practices.
Sarbanes-Oxley requires a registrant’s management (CEO and CFO) to provide certifications in periodic filings with the SEC, and to have an independent audit committee with at least one member qualified as a financial expert.
Any public company will need a suite of board-approved risk management and control policies. Companies in today’s business environment are focusing more on risk assessment and response as a result of increased regulatory and investor scrutiny. Shareholders are also increasingly expecting transparency, open communication and effective global risk management.
Enhancing internal controls can help meet evolving tax, legal, accounting and procedural challenges. Establishing an internal audit committee is key to meeting these requirements. Audit committees typically examine the annual and quarterly financial reports, and review the financial reporting and budgeting processes.