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IPO Readiness Advisory

IPO readiness assessment has become relevant in the recent years due a highly unpredictable and volatile market. IPO readiness advisory helps businesses to gain insight into what is needed for the successful execution of the company’s IPO.

Package inclusions:
  • End-to-End Readiness Assessment
  • Support for Financial Reporting and Compliance
  • Complete Assistance for Compliance Assessment
  • Planning and Documentation Assistance
  • Assessment of Internal Controls and IT System
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IPO Readiness Advisory Services

When a company finds itself requiring more funds for its operations which are unmet by its ability to raise capital through other channels of investment, it opts to ‘go public’ and make its Initial Public Offer (IPO). However, the decision to simply go public and raise capital through IPO requires an exhaustive understanding of whether the company is in the right position to make its IPO or not. For this, the readiness assessment of the company is undertaken to review the position of the company. This is where the IPO Readiness Advisory Services of a CFO come into the picture to help the company assess its preparedness before going public.

Meaning of IPO or Going Public

Going Public simply means offering the company’s shares to the general public. It refers to the method of raising capital for the company by offering its securities for purchase by the public. When the public offer is made for the first time, it is called the Initial Public Offer or IPO.

IPO allows a company to raise fresh equity capital for its capital requirements and expansion, while also allowing it to trade its shares in a regulated stock market.

Making the Initial Public Offer is a milestone event for a company where it remodels into a public company from a private company. Execution of the Initial Public Offer allows a company to expand its market base, improve its products and scale up its operations.

Advantages of Initial Public Offer

The following are the main benefits of listing a company and making its Initial Public Offer:

IPO Readiness Advisory
  • Raising capital: The primary benefit of IPO is that the company can raise a large sum of funds that can support its scaling up plans, purchase of its plant and equipment, expansion of its research and development, development of its products or services, etc.
  • Market Value: Initial Public Offer also leads to an increase in the market value of the company as compared to its market value as a private company. This is because of the increase in its liquidity, more transparency, and easier evaluation of its value.
  • Mergers and Acquisitions: Initial Public Offer also increases the ability of the company to acquire a small company or merge with a company to expand its operations.
  • Increase in Company’s Liquidity: When a company makes a public offer, it directly impacts its liquidity positively, since the shareholders are able to buy or sell their shares in the company more easily.
  • Internal Management: Initial Public Offer also improves the internal management of the company as it is able to retain its employees through schemes like ESOPs. This also allows the company to ensure hirer motivation in employees to work in synchronisation with and committed to the company’s goals.
  • Improving Company’s Public Image: Listing a business through Initial Public Offer also allows it to promote its operations with the public, market its brand, and improve its goodwill and public image.

When it comes to the preparations for Initial Public Offer, many companies prefer to start their process of converting into a public company well before the process of IPO actually starts. Preparing in advance for the Initial Public Offer also plays to the benefit of a company as it is able to execute the offer more smoothly and in accordance with all the requisites and regulations applicable. In order to do so, the best way is to assess the IPO readiness of the company by consulting CFO Advisors who can assess the gaps and issues that exist in the company well before the actual Initial Public Offer is made.

Concept of IPO Readiness

Investors who wish to invest their funds in a company expect it to be ready for the market well in advance before it makes its Initial Public Offer. Investors want a company to evaluate various aspects of its operations such as internal systems, control management, financial management, governance and regulatory compliance before the company reaches the formal IPO stage. For many investors, pre-IPO readiness of a company plays a crucial factor in building their decision to invest in it or not.

Assessment of the IPO readiness of a company enables a thorough investigation of the company’s abilities and operations. It also helps in the identification of any gaps or weaknesses that may exist between the actual situation of the company and the expectations investors may have from it. However, the process of IPO readiness assessment is not simple.

It involves red-flagging the potential as well as existing weaknesses of the company and critically examining them in order to design the exact blueprint of the company’s capacity and abilities. IPO readiness assessment has become more relevant in the past couple of years due to the unpredictability and volatility of the market.

IPO readiness assessment helps company leaders gain insight into the measures needed for the successful execution of the company’s IPO. CFO Advisors can help a company in laying down a detailed plan of action for its journey to go public, which includes identifying the costs, stages, timeline, requirements and management needed before reaching the final stage.

IPO readiness assessment must be started well before the date set for the company’s Initial Public Offer, around at least 6-12 months before the IPO. While each market possesses unique features and each company’s assessment requirement vary, the basic parameters of IPO readiness assessment remain the same.

What IPO Readiness Requires

IPO readiness assessment requires a company to evaluate the gaps and issues relating to the following:

IPO Readiness Assessment of Corporate Governance

IPO readiness assessment involves ensuring the capabilities of the company’s Board of Directors. A company planning to make its initial public offer must assess the capacity and ability of its executive management team, i.e. whether they can meet the expectations of the market and compliance norms laid down under the applicable laws.

This includes assessing whether the Directors possess the required skillset and eligibility to handle the IPO or not. It also involves examining the applicable laws, regulations and guidelines to ensure that the company’s operations are properly represented by its executive managers.

For instance, in India, the Companies Act, 2013 and SEBI regulations lay down the mandatory requirements relating to the minimum number of independent directors, resident directors and woman director. These laws and regulations also specify the different kinds of Committees that must be appointed by the company for its various functions.

Therefore, a company planning its Initial Public Offer needs to carefully assess its Board of Directors and make a decision regarding the composition of the Board, including any additions or removals.

IPO Readiness Assessment of Financial Processes

IPO readiness assessment also involves evaluating the company’s existing systems relating to financial reporting, financial management, budget management and financial modelling. It involves classifying the existing weaknesses and potential threats in the existing models and finding the right solutions to make necessary changes before the company moves towards IPO.

Assessing the financial processes of a company is also needed to identify whether the company is already following the appropriate accounting standards or not. Conversion of the accounting standards followed by a company requires assistance from CFO Advisors who can assess the existing capabilities of the company and recognise the potential areas for changes in the finance department.

Assessment of the financial processes of a company must be done at the pre- IPO readiness stage since these changes cannot be made right before the final moments of the IPO process. It requires a gradual improvement and permission from the authorities to change the financial processes of the company.

For instance, the Securities and Exchange Board of India (SEBI) has issued a circular relating to the applicability of Indian Accounting Standards for companies that wish to raise capital by listing themselves on recognised stock exchanges.

Assessment of Applicable Compliances for IPO Readiness

There are various compliance requirements that must be fulfilled by a company before going for its initial public offer. This includes regulatory requirements for documentation and internal control management of the company. Though the specific internal control requirements can vary for different industries, the basic requirements for all companies going for IPO are similar.

The Companies Act, 2013 also lays down the requirement for proper internal financial control management before a company can be listed. This includes submission of a report by the Directors that the company operates with properly implemented and compliant internal controls. Additionally, the Auditor of the company is required to issue a report that confirms the company’s internal control.

IPO readiness advisory services also include ensuring that the company strictly implements and monitors its internal controls throughout. This includes an assessment of the Anti-Money Laundering controls, Whistleblowing controls, implementation of the Code of Conduct, Internal Audits and proper internal reporting mechanism as per the requirements of the regulatory authorities, auditors, shareholders, etc.

Risk Management Assessment for IPO Readiness

It is the inherent nature of a business to face some kinds of risks during its lifetime. However, companies which are listed and have the liability to safeguard the interest of their shareholders need a more robust risk management system. Before going for IPO, a company, therefore, needs to ensure the implementation of strong risk management and planning processes to mitigate any threats.

It also includes defining the kinds of risks the company is susceptible to for more transparency for investors and the mitigation strategy that the company would implement to deal with such risks. IPO readiness assessment also includes defining the roles and responsibilities of the Board of Directors for the identification, assessment and resolution of any form of risks. It is also crucial to conduct IPO readiness assessment of a company to ensure that the available documentation and reports are sufficient for the Directors to form decisions about the company’s risk management. It includes defining the procedure through which any changes in the processes of the company are sanctioned by the Board of Directors.

IPO Readiness Assessment of IT System

IPO readiness advisory services also include evaluation of the company’s existing IT systems. This includes an assessment of the IT-based financial reporting systems, internal control and communication system, data security system, to name a few. Evaluation of the IT systems of a company before IPO is necessary because it helps the company to identify any lacunas in its technology framework – whether it needs to redesign such systems for more efficiency and security, and whether the company has a disaster recovery system and data backup system or not.

Financial Forecasting for IPO Readiness

Investors who are interested in purchasing shares of a company during its first public offer look for the financial projections and expected financial changes in the company from its current situation. They want a clear picture of the company’s current financial results and the yardsticks it is setting for its future performance.

For this, laying down a detailed business plan of the company is required, to define the expected financial results, the financial history of the business and the company’s strategy to achieve its financial goals. This also includes preparing the detailed financial model of the business based on the applicable accounting standards and analysis of the company’s financial history.

Additionally, since a listed company’s financial statements including its Balance Sheet, Profit and Loss Statement, and Cash Flow Statement must be property audited, it needs to opt for IPO readiness advisory services to ensure that all the standards and requirements are fulfilled before the final IPO step.

IPO Readiness Advisory Services by Enterslice

Enterslice is a team of seasoned business professionals including Chartered Accountants, CPAs, Company Secretaries, Lawyers and other professionals who hold years of expertise and extensive skillsets in assessing the IPO readiness of a company. Our financial and business experts can help a company with its internal control assessment, accounting standard assessment, financial report, risk assessment and management, business process formation, tax consultation, compliance management, auditing and much more!

The IPO readiness advisory services offered by Enterslice include:

  • Preparation of Financial Statements: We provide end-to-end assistance for the preparation of the financial statements of the company as required by the Securities and Exchange Board of India for the IPO process.
  • Business Plan and Financial Modelling: Our experts provide support for complete business plan drafting and financial modelling of the business before it goes public.
  • Corporate Governance Compliance: We guide companies to help them in ensuring complete adherence to the corporate governance requirements applicable before they reach the final stage of the IPO process.
  • IPO Planning: The process of IPO application is complicated and requires expertise and knowledge of subject matter experts. Enterslice provides all-inclusive assistance for financial management, risk assessment, application drafting, passing of resolution, approval from the SEBI, IPO strategy and planning.
  • Tax Compliance: Our IPO readiness advisory services also include preparing the company’s financial processes and tax-related compliance requirements once the company begins its final process of IPO. This includes a complete review of the tax compliance requirements of the company, identifying the changes needed and setting up post-IPO compliance processes.
  • Business Valuation: Enterslice also provides IPO readiness advisory services for the company’s valuation as per the requirements and assessment by the investors.
  • Documentation: We also provide support for complete documentation preparation for the company including the preparation of the draft red herring prospectus (DRHP).
  • IPO Road Show: Enterslice’s experts also help companies in preparing their Investor Presentation for attracting potential buyers, including the pitch, code of conduct, plan of action, etc. for a successful road show.

IPO Readiness is the key to a successful Initial Public Offer. Our IPO Readiness Advisory Service Package includes:

  • End-to-End Readiness Assessment
  • Support for Financial Reporting and Compliance
  • Complete Assistance for Compliance Assessment
  • Planning and Documentation Assistance
  • Assessment of Internal Controls and IT System

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Frequently Asked Questions

A Public Offer or PO is the offer made by a company to the general public to sell its securities. A company makes an IPO to the public to raise capital by issuing equity. When a company has never been listed before and is making the first offer to the public, it is known as Initial Public Offer or IPO.

Yes, an IPO is different from Further Public Offer as FPO is a process where a company which is already listed on a stock exchange makes a fresh issue of securities or an offer for sale to the public. It is also known as Follow-On Offer since it follows the initial public offer of a company.

A company may opt for Initial Public Offer or going public for different reasons such as the expansion of its operations, product development, debt repayment, penetration of a new market, etc. The various benefits of making an initial public offer for a company are supporting and branching out the company’s equity base; accessing a more convenient and affordable manner of raising funds; boosting the company’s image and trustworthiness in public; providing liquidity and exit option to the company’s directors; benefits the company’s employees and its pre-IPO investors; enhancing the company’s access to the equity market.

The SEBI - Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, also known as the SEBI ICDR is the primary source of the rules that regulate Initial Public Offer in India. In addition to these regulations, the Securities Contract (Regulation) Act, 1957, the Securities Contract (Regulation) Rules, 1957 and the Companies Act, 2013 lay down the legal compliances and procedure to be followed for making an IPO in India. A company must ensure that it is compliant with these laws before making an IPO by opting for IPO Readiness Advisory services.

There are three routes available to a company for making its initial public offer in India. These IPO routes are: Profitability Route – Entry Norm 1, QIB Route - Entry Norm II and Appraisal Route - Entry Norm III.

The SEBI has exempted certain entities from the entry norms associated with making an Initial Public Offer. These entities include Private Banks and Public Sector Banks, as well as Infrastructure companies which have project appraised by a Public Financial Institution, IDFC, IL&FS or a bank which was previously a PFI, and at least 5% of the company’s project costs are funded by any of such institutions.

The primary market is where the investors can buy securities directly from the issuer company. This is a market where a company lists its securities for the first time.

Secondary market is where securities are traded after they are initially offered to investors in the primary market via IPO and are listed to a stock exchange. Secondary market consists of equity and debt markets. The secondary market is considered to be an avenue for the trade of listed equities, whereas a primary market is a platform through which a company can enter into secondary market.

The process of IPO starts with the appointment of an Investment Banker, who takes care of the process of Initial Public Offer. The Investment Banker delivers the bids to a company which is planning to go public with regards to the amount that the company will be able to make via IPO. This process of an investment banker managing the process of IPO and acting as the broker between the company and the general public is called Underwriting.

Draft Offer document is prepared by the company planning to make the IPO and the Book Building Lead Manager of the public issue. The draft offer document is submitted to the SEBI for evaluation. Once this document is reviewed, the SEBI either directs the lead managers to make amendments to it or approves it for the next step of IPO processing. The Book Building Lead Manager also plays an important role in assessing the IPO readiness of the company.

Once the Draft Offer document is approved by the SEBI, it becomes the Offer Document, which is the amended and final version of the Draft Offer document containing the suggestions made by the SEBI. The offer document is further submitted to the Registrar of the Stock Exchanges where the company wants to list its securities.

After the approval of Offer Document from the Registrar of the Stock Exchanges, the company adds the issue size and price in the document and makes it available for access by the public. This issue prospectus is called the Red Herring Prospectus of the company.

The right time for a company to go for Initial Public Offer depends upon numerous factors, including the market conditions, macroeconomic conditions, the company’s capital requirements and the company IPO readiness.

A company planning to go public must finalise the market, geography and stock exchange which meets its requirements to raise capital. Every stock exchange has different entry norms such as shareholders’ equity, market capitalisation, expected number of shareholders and corporate governance. This is another reason why a company must opt for IPO readiness advisory services. IPO readiness assessment ensures that the company is opting for the right stock exchange as per its requirements.

Our objective is to assist our clients in maximising their business’s value by guiding them to execute a failproof IPO process and prepare the company for its entire life as a listed company. Enterslice provided tailor-made IPO Readiness Advisory services to businesses and helps them to minimise the risks associated with any delays, legal hindrances and compliance issues before they reach the final step of their IPO, in addition to post-IPO compliance requirements.

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