IPOready Module 2 Recap
Last week we hosted Module 2 of our IPOready programme.
The theme for this module was ‘Becoming investment ready, and demystifying the valuation process’. The content was slightly more technical this week, and very well suited for all the CFOs in the room!
To kick off Module 2, Siobhan Wall from Goodbody Corporate finance pulled back the veil on the IPO process from an investment banking perspective. It was a candid and interactive session, beginning with Siobhan asking the group to share their questions and concerns about the process, and addressing each one head-on, and using her own experience and anecdotes to dispel some of the myths that persist around the process. Siobhan then interviewed her colleague, Don Harrington on his significant experience working with tech companies over the last twenty years and the current dynamics in capital markets for big and small tech fundraisings.
The focus of the day then shifted to getting your company investment ready from a number of perspectives:
Firstly, are your financials in order?
Marc Rogers of Deloitte talked about the vital importance of financial hygiene, and how to know which KPIs should be focused on (it’s industry-specific). His key takeaway, however, was that your financial model may not be as robust as you think it is, and gave some tips on how to strengthen it: for example, making sure your cash flow model actually mirrors your business. Furthermore, he noted that KPIs and financial models are the sorts of things you should be thinking about 12 months before going public, as these are the things that take time to fix.
Next up, Louise Kelly, Tax partner for Deloitte spoke to the participants about the tax obligations and considerations of being a public company. Most notably, she gave detailed tips on how to:
· Keep up with the evolving tax regime & nuances of different jurisdictions
· Utilise tax credits effectively
· Structure Equity plans for employees.
Secondly, is your company legally fit?
One of the most feared aspects of the IPO process can be the legal aspect. To demystify this process, Mark Talbot from William Fry talked through the legal process and gave some actionable tips on how to make this step as easy and painless possible. Mark noted that a lot of time is typically wasted in this process because companies are not adequately set up for ‘discovery’. He advised participants to gather as many documents as possible, as early as possible in the process.
Mark also told the group that “every company has skeletons in the closet. Get ahead of these issues. Deal with them, and deal with them early”. The skeletons he typically sees are ongoing litigation (or the threat thereof), disgruntled employees, disputes over share options, etc. A lot of issues can be avoided with diligent minute taking.
All of the above of course, simply good practice- and should be implemented whether or not you’re planning an IPO. Good legal hygiene will make everything easier- whether by preventing or litigation or making future fundraising or transactions easier, or simply for the smooth and efficient operation of your company.
Thirdly, are you communicating with your stakeholders effectively?
Up next was Simon from Investis. Investis is a digital communications consultancy firm that specializes in public company communication. Simon gave a captivating presentation about the changing landscape of corporate communications, discussing about everything from websites to video gaming. (Yes, some companies are actively using Fortnite as a communication platform!). The key lesson from Simon however, was that the platform matters less than the message. The platform is merely a medium to build a meaningful connection with the audience.
What companies shouldn’t neglect, however, is using the power of some of these platforms to learn real (data-backed) insights about your audience, and to use these insights to further drive meaningful connection with the audience.
Lastly, after a tour around the future of digital media, Simon brought it back home to the humble website. Don’t neglect the website, and in particular, the Investor Relations aspect of your website. The investment community uses these, and uses them a lot!
Dealing with the media
As a new addition to the programme this year, we invited a journalist, Gavin Mc Loughlin, to speak to the candidates about what they can expect from the media as a public company, and how to communicate with the media (and their audience) effectively.
After outlining the rules of engagement (how to use on-the-record and off-the-record), Gavin busted the myth that being a public company gives the media more access to the accounts and finances and therefore more material to write stories. As an ambitious, high growth company, whether public or private, media scrutiny is inevitable. Gavin noted that journalists frequently use Vision-Net to sift through filed accounts and write stories on private companies. It makes no difference to he and his peers whether a company is public or private.
He did note however that being public can boost your profile and make it easier to secure coverage and communicate to your customers and investors that way.
Most importantly, Gavin advised that companies simply speak plain English when speaking on air or talking to the media. He expressed his frustration at the scripted corporate jargon that has increasingly crept into the business media vernacular.
Lastly, the tables were turned, and the companies got to ask Gavin some tough questions! All of which, of course, were off the record!
To conclude the day, participants were brought to Goodbody Stockbrokers for a tour of the trading floor and to hear about what actually happens on IPO day and how shares are traded. It was followed with insights from Joe Gill on Irish plc stories and how they have created value over time, followed by a dinner in the boardroom.
DAY 2.
To kick off the module on Day 2, we first separated the CEOs from the CFOs to host the two separate streams in separate locations.
The CFOs participated in a session hosted by Alan Mahon and Giovanni Squarcina from the AIB Corporate Finance team. Alan broke down their decision-making process and articulated why they invest (or choose not to invest) in a company. AIB have been early and cornerstone supporters in the Greencoat Renewables, Yew Grove REIT and more recently Uniphar IPOs.
The importance of building a simple and user-friendly model for all stakeholders, both internal and external was debated thoroughly in the room. Giovanni went through the do’s and don’ts and common pitfalls that companies face in modeling their businesses. The benefits of having one model (for operations and financial planning/budgeting) but redacting certain sensitive elements for external parties was discussed extensively.
Meanwhile, hidden away in an undisclosed location, the CEOs attended an interactive session where they had a lively discussion facilitated by Irene Sorohan and Aileen O’Malley of O’Malley Sorohan on the “CEO dilemmas” frequently encountered when scaling your organisation. A hot topic was all the various hats that a CEO wears and the challenges of over time handing some of them over to your leadership team. Hence the big focus was on building that team — both at executive and board level — to drive growth and scale. There was a consensus that “your Board will be the best and cheapest advisors you will ever have”.
Once the CFOs and CEOs were reunited, Tom Hickey, Ex-CFO of Tullow Oil (and now CEO of Boru Energy) candidly walked them through his own CFO journey and gave both CFOs and CEOs his tips for success. The keys ones being:
· How to deal with the highs and lows of the market.
· To hire people “better than you”, and surrounding yourself with good teams that aren’t ‘yes’ people.
· To recognize the Importance of the team, particularly in the CFO role that can be quite lonely in a company.
· To balance between your personal and public company life, building good habits and leaning on the right supporters.
Next we tied all of the day 1 and day 2 lessons into a practical example. Tony McCluskey, CFO of Kenmare Resources plc, walked them through his Kenmare financial model. In addition to being a masterclass in Excel-modeling, the session highlighted the importance of accuracy of input data. The interdependency of the numbers from across the business lines was clear for all to see, and any bad data inputted at the start has the potential to undermine the integrity of the final output.
Finally, after lunch, we dedicated the entire afternoon to a session on the valuation. The session had many quickfire speakers, giving many perspectives on valuations.
- The Investor Perspective (Noel O’Halloran, KBI)
- The Broker (Sell-side) Perspective (Ian Huggard, Etoile Advisory)
- The Company Perspective (David Marshall, IRO, Digicel)
- Value Drivers — Panel (All — Moderated by Paul Lynch)
Ian, wearing a number of hats set the scene with a discussions on the merits and demerits of traditional valuation metrics and how important it was to identify the appropriate peer set and the drivers of the valuation multiple to be applied. He later discussed the importance of a clear investment case for the equity sales and research teams to articulate to potential investors to build momentum for the IPO order book and ultimately generate positive pricing tension.
Noel gave a very interesting investor perspective and asked a number of pertinent questions institutional investors consider in their decision-making process:
1) Why do you want my money?
2) Is yours a differentiated story?
3) Does the offering fit with my investment style?
4) Does the offering improve my overall portfolio risk/ reward?
5) Can I credibly put a valuation on the offering?
David, with his broad experience with a number of Irish listed plc’s, gave an interesting take on how a company needs to manage the demands of its advisors and investor in the run-up, at, and post IPO. He highlighted the importance for the IR function in controlling your message at all times and above all, communicating with the market in good and bad times if you want to get a fair valuation!
Paul Lynch, one of our veteran mentors then moderated a lively discussion on all aspects of the valuation conundrum, and it seems even a relative-DCF might be useful for comparing some tech companies on significant EV / Sales multiples!
Thanks again to all of our fantastic speakers and attentive students. Next up is the first pitch sessions later this month, which all the participants are beavering away on the moment followed by module 3 after the Christmas break.
As always, if you have any questions about the IPOready programme, or would like to register your interest for next year, please email IPOready@euronext.com.
