IPO aspirants told: Don’t lose heart

Global and local capital markets have been on a roller coaster ride, but local enterprises with big ambitions for future growth should not lose heart, a partner at an auditing and consulting firm said.

Family-owned enterprises gearing up for an initial public offering (IPO) must be willing to undergo preparation work that normally takes three years, said Emiliano Librea III, P&A Grant Thornton advisory services head.

In the Philippines, raising capital via an IPO--defined as the first sale or distribution of tradable securities to the public--is a possible financing source for “next-stage” business expansion, apart from borrowing capital from banks and other financial institutions.

“In the capital structure of a business, it is advisable to have a good mix of debt and equity, and one of the ways to raise equity, especially a lot of it, is through an IPO,” said Librea.

He said a private enterprise must take a long-term view in the IPO journey and must not be dissuaded by economic and market cycles. Preparing well in advance provides the opportunity to build company value by improving its bottom line, business plan, and management team in order to attract public investors, he added.

Librea shares three steps to IPO readiness:

-Family businesses must “clean up shop,” which entails assessing their financial health for the last three fiscal years, improving compliance, and aligning internal controls and processes with international best practices. These housekeeping activities can help establish a good track record and enhance the historical value of their enterprises.

-Family enterprises must have a compelling growth story to tell and build on that story for pitching to investors. In preparing for an IPO, the business must communicate a clear and cohesive vision of the future, goals and a roadmap. That also creates potential value for the business.

-An effective management team must be established, including independent board members who can provide valuable insights about how the business should be run. “It’s like having consultants on board,” Librea said.

Although the presence of independent directors is not required in the board of family-owned companies, the inclusion of reputable or distinguished individuals can enhance the governance aspect of organizations.

“That creates a perception of value in the minds of investors. But once the company decides to go public, having independent board members becomes necessary,” Librea explained.

Once the enterprise is IPOready, choosing the right time to go public is as important.

The degree to which the owner or founder is engaged or involved in the IPO journey can also spell the difference between success and failure.

P&A Grant Thornton has organized roadshows in high-growth urban areas outside Metro Manila for small and medium enterprises (SMEs) aspiring to become publicly listed companies. /