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The CFO & IPOs

A Private Companies’ Playbook

2Sep

According to Renaissance Capital, the past two years have seen the most US IPOs since the turn of the millennium, with 222 in 2013 and 273 in 2014. And their growing popularity shows no sign of abating, with 122 in the pipeline as of the end of March.

The CFO and the finance team are particularly important to firms looking to float, both as drivers of the IPO process and in its management afterwards as a public company. They must ensure that all of the key requirements are prepared - such as board governance, corporate policies, and IT systems - so that the transition can be made as smoothly as possible, and then adjust the firm’s working practices to suit the differences between public and private companies.

Companies launching an IPO want CFOs in place who have successfully been through the process before. They are, however, fishing in a shallow pool. The low number of IPOs in the 2 decades preceding 2013 means that people with such experience are in short supply. It is also a hard sell to convince a CFO who has done it before to repeat the experience, as it is an incredibly arduous and stressful process. As such, firms looking to float must often rely on CFOs who are coming into the experience from a fresh.

There are a number of qualities a pre-IPO company from a CFO. One of a CFO’s most vital skills in the modern business world is experience in dealing with Wall Street, and this is especially true for companies undergoing an IPO. As such, many companies are now looking to investment bankers or financial consultants to guide them through. Many relationships must be maintained and nurtured during the IPO process, both within the organization and with the investment community, and CFOs need to prioritize collaboration in order to help their firm cope with the pace of change and push high share price.

As a company scales, it is also likely that they will need a greater knowledge of international markets, and the nuances in the markets of countries that they are moving in to. The administrative complexity of moving into a country like China, for example, is far greater than moving into somewhere like the UK. There are also a number of regulatory issues to consider in moving into different regions. Automation can help with this, and the CFO must be extremely tech savvy. Automation can also greatly help with scaling processes and financial products, which is especially important during an IPO and any period of high growth. The CFO must be aware of what the best of these are or they will encounter a number of problems.

There are a number of mistakes that CFOs can make during IPOs. One of the most common of these is focusing on the short-term share price, as opposed to sustaining IPO valuation. CFOs must ensure that a period of high growth like an IPO are in line with a company’s overall strategic goals by guaranteeing that resources are properly planned, allocated, and monitored to optimize the success and impact of the company’s growth strategy, and build processes and infrastructure that support the firm as a newly listed public company. 

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