What makes a successful IPO?

IPO markets experience peaks and valleys in terms of the number of IPOs and capital raised in a year, the sectors finding favor with investors and the returns post IPO. Macroeconomic conditions act as either headwinds or accelerants, but great companies often can go public in almost any market. Ultimate success will be different for each company, but certain elements of a successful IPO are common across most IPOs. And the path to success is built upon preparation that is defined most of the time by quarters and years as opposed to weeks and months.

Here are some of the ways to measure the success of an IPO

Hallmarks of attractive private companies

The US IPO market is focused on growth and it’s tolerant of companies with little to no profitability at IPO. For the last five years, that has meant the leading sectors for IPOs have been technology (mostly software) and pharma life sciences (mostly biotech). But many companies outside these two sectors, especially in the consumer, financial, and real estate sectors, also turn to the IPO market for growth capital. Here are some characteristics common among high-profile private companies executing successful IPOs:

• A large, growing TAM or total addressable market
• A differentiated business model and track record of success
• An attractive product or service, preferably with a competitive “moat”
• Strong revenue growth that is sustainable and visible
• Strong margins, cash flow generation and a path to profitability
• An experienced, “public company ready” management team
• Robust financial, operational and compliance controls supporting KPI reporting
• Robust IPO project management

Preparation is the secret to success

Planning, executing and managing an IPO is a complex task for any organization. The better prepared a company is, the more efficient and less costly the process can be.

The preparation process may be even longer depending on the maturity of a company’s existing processes. It is vital that the company understands and addresses any gaps in its capabilities.

Three stages of IPO preparation

In our experience, a successful IPO has three equally important elements.

1. A thorough IPO readiness assessment in which big picture issues are identified and realistic timetables are established. This needs to be based on the offering objectives, the company’s specific business issues, the time needed to prepare registration information and the time required to prepare for operating as a public company.
2. A working group dedicated to the immediate process of going public.
3. Another working group focused on the tasks needed to prepare the business for being public.

Our PwC Deals team can work with you, bringing industry-leading project management to help answer your questions.

_{Note: IPOs with deal values of less than $25 million, best efforts offerings, oil and gas royalty trusts, business development companies, pricing on OTC Bulletin Board and OTC Pink Sheets are excluded from this narrative.}