Not just profits: The softer side to a successful IPO
Author: Lub Bun Chong
Publisher: C Consultancy Limited
How much profit does my company need to IPO? This is one of the most common questions raised by companies aspiring to IPO. This is a very important and valid question, but somewhat misguided because there is more to an IPO than just "hard" profits. There is also a softer side.
Generally, three interlinked "soft" key performance indicators will impact the value of the company, which are its business model, capital market positioning and shares liquidity.
Firstly, the company needs to build a credible business model that can deliver sustainable growth in a socially responsible manner. And this needs to be clearly demonstrated to the investing community. Key features of such a business model would include (a) depth of anchor and/or strategic shareholders, (b) management ability to execute and consistently meet or exceed forecast operating performance, and (c) track record of good corporate governance. In financial terms, the above will translate to a consistent delivery of strong growth in profits & cash flows and the maintenance of a robust balance sheet, and this will in turn increase the value of the company.
Secondly, the company needs to be more visible in the capital market i.e. increase brand awareness and establish solid communication channels with the investing community. To achieve this, an investor relation function is needed to ensure that company is (a) prominent to investors (b) constantly aware of investors' concerns and expectations, and (c) effectively managing the dissemination of information in the public domain.
Thirdly, the company should ensure a level of liquidity that will facilitate investors' entry and exit. Once a sufficient level of investors' interest has been generated by a combination of good business model and capital market profile (that is the first and second key performance indicators), the company can then seek to increase its free float through either the sale of existing shares by substantial shareholders or the issuance of new shares for expansion. Either way, this will ultimately lead to a more diversified shareholder base.
Said simply, the company’s LISTING preparation work should be driven towards achieving these three inter related soft key performance indicators.