In this uncertain economic environment, how can life sciences companies looking toward an initial public offering (IPO) position themselves for success when the time is right? It’s all about setting the stage months or even years prior to the IPO. Note the following five key questions companies should consider now as they begin planning their IPO strategic roadmap.
1. What’s your story?
At a life sciences industry event sponsored by RSM, panelists from IPO biotech and life sciences companies shared their lessons learned on their going-public journeys. Most on the panel talked about the importance of telling a powerful story about the company: its origin and vision, milestones and investment journey, along with all the supporting data. This story sets the stage for investor discussions in the marketplace. While every company has its own story to tell, a story that is too complex or metrics that do not conform to industry norms are easily ignored by the market. The type of information you disclose and the manner in which you present it in the IPO prospectus is not etched in stone forever, but a detailed review of competitor filings and advice from the investment banking team should provide a solid blueprint for how to best get your company’s message to the market. One panelist said that investors “are looking for a good story…they are looking for solid data and they want that data to be validated.”
2. Is your management team top-notch?
A solid management team conveys confidence to investors. If your life sciences business is lacking skills and experience in investor relations, accounting, sales and marketing or more, fill those needs with qualified people now. According to a panelist: “Management in building a team and having a team that shows well is super important.” Likewise, just as an internal team is essential, the external team of investment bankers, lawyers, auditors, valuation experts and other advisors should be assessed to ensure the company is working with the right team of advisors for both the IPO and the future. Public company experience is a critical prerequisite for all external advisors.
3. Have you considered the cost of going public?
According to our IPO panelists, companies sometimes underestimate the hefty costs of going public. Said one panelist, “You are right away skimming off anywhere from 9% to 12% of your IPO.” Additional costs could include fees related to accounting, stock option management, legal, compliance and more. Assess the various fees and costs by working with your accounting, legal and compliance advisors to fully understand the financial impact and risks of going public.
4. Are your systems and operations ready?
Quite often the typical private company systems, process and controls are generally inadequate to meet the demands of being a public company. These three elements should be evaluated and upgraded in tandem. And according to one panelist, “You can’t start planning for this too early. You really have to be thinking about accounting issues, technical issues and governance issues.”
Being a public company subjects the accounting and finance function to a faster tempo, greater scrutiny and increased accountability that places a premium on speed, efficiency and accuracy. Improvements in these areas also will build confidence in the minds of investors as you near your end-goal of an IPO.
5. Are you allowing enough time for IPO preparation?
Your IPO’s success depends on careful planning and the assistance of a team of qualified professionals. The planning process should begin two to three years before the anticipated date of completing the offering. This lead time is important if you wish to keep IPO costs to a minimum, avoid surprises, adequately prepare the company for the due diligence process and the public scrutiny associated with an IPO, and increase the chances of good market timing.