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Preparing to go public
2.1 Choosing advisors
J.P. Morgan (Investment Banking)
(a) Retention of advisors/service
providers
Going public involves assembling a large
and experienced team of professionals,
including lawyers for the company and
the underwriters, independent auditors,
underwriters, insurance brokers, financial
printers and data room providers. The
company should carefully consider the
skills and qualifications of all parties it
hires, given the importance of the advice
and services they will provide throughout
the process as well as the messages their
involvement with the IPO will signal to
other advisors and to the market. The key
advisors and service providers that the
company and board need to evaluate and
hire are as follows.
Company counsel: Company counsel work
in concert with the company’s management
team, including in particular the company’s
chief financial officer (CFO) and general
counsel, to represent the company’s legal
interests throughout the process. They
are integrally involved in carrying out due
diligence investigations into the company,
drafting the registration statement and
advising the company in relation to the
various legal agreements it will enter into
in connection with the IPO process, such
as lock-up and underwriting agreements,
as well as generally providing legal advice
to the company throughout the process.
In selecting company counsel, it
is important to choose a firm that has
considerable expertise and a proven
track record of executing IPOs as well as
appropriate industry and sector expertise.
At a more personal level, it is critical
to select individual law firm partners
with whom the management team has
good rapport, as they will be spending
a considerable amount of time together
through the process.
Independent auditors and consulting
accountants: The independent accountants
are involved in performing an audit and,
where relevant, review of certain financial
statements prepared by management and
included in the registration statement,
and in providing a “comfort letter” to the
underwriters which, among other things,
confirms the accuracy of certain financial
numbers included in the registration
statement. The underwriters and their
counsel will conduct in-depth due
diligence with the accounting firm around
their relationship with the company, their
independence under applicable rules and
regulations, the integrity of the company’s
financial statements and the processes
and methodologies underpinning their
preparation and audit.
The decision to hire auditors is of
critical importance, given that they will
be integrally involved in the company’s
financial reporting for many years. Auditors
should be hired well in advance of preparing
for the IPO so that the financial statements
and related disclosures to be included in
the registration statement are presented on
a basis consistent with prior-year audits.
The SEC requires three years of annual
historical audited financials (two years in
the case of emerging growth companies)
and these would ideally have been audited
by a single firm of auditors. Although a
“Big 4” firm is typically recommended for
companies that are contemplating an IPO,
there are a number of boutique and regional
auditing firms that are also well regarded
and talented. The company should consider
industry expertise, reputation and fit with
the company, among other factors, when
selecting an auditing firm.
In many cases the company requires
assistance in designing enhanced
accounting processes and controls,
preparing financial statements and other
information for audit and to supplement its
staff during the IPO process and transition
to becoming a public company. The auditor
may be unable to perform some of these
tasks due to independence requirements,
so a separate accounting consultant may be
necessary. Accounting consultants provide
useful skills, experience and resources to
supplement the company’s accounting
and controls functions in this time of
transition, though the company should
ensure that it does not become reliant on
them beyond the IPO and has assembled an
appropriate team of in-house experts.
Underwriters: The underwriting syndicate
consists of various banks, each having
different roles and status within the
syndicate. The lead banks are known as
bookrunners and are so called because
they literally run the order book for the
offering once it is in its marketing phase.
Many companies will choose more than
one bookrunner, in which case one will be
appointed the lead bookrunner, or “lead
left” bookrunner (so called because its
name is listed first on the top line in the
prospectus). The company should carefully
choose the lead bookrunner for the IPO
because of the critical role that it plays
throughout the process. As the quarterback
of the IPO, the lead bookrunner advises
the company on all aspects of the IPO
process, assists the company in shaping
its investment thesis to be used while
marketing the transaction, guides the
company in its dealings with investors
during the roadshow and develops the
optimal pricing recommendation for
the IPO.
The bookrunners as a group are closely
involved in diligence, drafting the registration
statement, crafting the marketing materials,
creating the roadshow schedule, pricing the
transaction and supporting the stock in the
aftermarket. The bookrunners’ research
analysts will also be involved in undertaking
due diligence on the company and play an
important role in providing an independent
view on the company to investors during
the roadshow. The bookrunners should be
chosen based on their relationship with the
company, industry expertise, expertise in
executing IPOs, track records with issuers
and investors, distribution platform, research
analyst capabilities and market-making
ability.
Beneath the bookrunners sit a
further group of underwriters, typically
known as “Co-managers.” The Comanagers’
investment banking teams are
significantly less involved in the day-to-day
advisory role for which the bookrunners are
responsible. They are, however, involved
in most (if not all) of the due diligence
undertaken. The Co-managers’ research
analysts will also take part in all analyst
diligence that is conducted, and they will
also play an active role in discussing their
view of the company with investors while
the roadshow is ongoing (although separate
from the roadshow). The primary role of the
Co-managers is to underwrite additional
shares in the offering, provide additional
research coverage post-IPO and assist in
market making once the stock is public.
Co-managers should be chosen based
14 NYSE IPO Guide