IPO on the back burner?

1. The need to assess if going public is right for your organization

It’s important for company executives to first ask, “why go public,” then create and adhere to the goals for becoming publicly traded throughout the pre-IPO process.

Usually a company considers going public when the funding demands of the business begin to exceed its ability to raise capital on attractive terms. Other common IPO drivers include succession planning and creating a smooth management transition.

However, simply requiring additional capital or needing a succession plan does not always mean that going public is the right path.

Important questions to consider before deciding to go public include:

• Do you have an attractive investing track record? Investment bankers look for companies that can fulfill several benchmark criteria to boost the chances for a successful offering and solid post-IPO stock performance. Assess how your business model, product offering, ESG (Environmental, Social and Governance) profile, management capabilities, and financial, operations and compliance controls stack up against the benchmarking criteria used by investment bankers.
• Are you comfortable with a loss of privacy? The registration statement and subsequent filings for public company reporting require disclosure of many facets of a company’s business, operations and finances that may never have been known outside the company. The sensitive areas of disclosure that will be available to competitors, investors and employees include compensation for officers and directors, fee-related earnings, performance-related earnings and ownership structure.
• Is the stock market right? The successful trading debut of an IPO comes down to both macro and company-specific issues. Asset managers considering going public should assess if the market is receptive to their deal whatever the macro backdrop, as the window of opportunity to go public may shift, and only IPO-ready companies will likely have the flexibility to launch their offering at an opportune moment. Unique to the asset and wealth management (AWM) industry, the ratio of public to private asset managers are often lagging behind other sectors. Once the IPO window reopens, that could lead to a number of peers getting ready for a public offering in the next year to two years.

3. The need for cost calculations for going and being public

Another key IPO consideration for asset management firms is the cost for launching an offering and the ongoing expenses for operating as a public entity. Several factors play a role in determining the cost of an IPO, including the filing process, the transformational costs in preparing to be a public company, and underwriting, legal and accounting advisory fees.

After the IPO, your firm should continue to develop new roles and responsibilities associated with being a public company, which often will require hiring new talent with skills across several areas of the business. In addition, you will likely incur expenses related to administrative and investor relations costs for quarterly reports, stock exchange listing fees, proxy materials, annual reports, transfer agents and public relations. Public companies also pay insurance premiums for directors’ and officers’ liability coverage.

5. The need to assess the diversity of your asset class portfolio, with additional focus on ESG

As part of preparing for an IPO and establishing a strong equity story, you might consider diversifying your asset classes. Historically, alternative asset managers primarily invested in core private equity assets. More recently, value and growth in the industry have been largely driven by diversification into other asset classes, including public and private credit, real assets (including real estate and infrastructure) and insurance.

Asset managers are also diversifying with impact investing vehicles and are launching products with an added focus on ESG, which can be a growth driver for investment products. However, in addition to the managers’ ESG investment performance, your firm’s own ESG impact, strategic plans and risk profile should be a key focus area – as ESG is increasingly becoming a part of your company’s larger equity story. As a public company, you should be prepared to articulate your ESG profile in many ways, including through SEC disclosure documents, earnings reports, investor presentations and press releases.

A company considering an IPO should be prepared to meet not only investor expectations for ESG, but also be able to communicate about its track record and marketing to regulators.