Preparing your private company for an IPO

In this week’s blog post we will discuss how to prepare a private company for an IPO, with a focus on investor relations, in the Mexican context.

Over the past three years, there have in fact been very few IPOs in Mexico, and those that have occurred (Fibra SOMA, Fibra EXI, Vasconia, and Cox Energy), are relatively small, and fairly illiquid. That said, with the economy recovering, the equity market at an all-time high in Pesos, AMLO political risk perhaps factored in by now, and Private Equity needing to offload some success stories, it could be an opportune time for some private Mexican companies to start the IPO process.

Why Go Public?

Private companies typically go public in order to open paths to capital, and for shareholders to diversify wealth and obtain liquidity. The new capital can be used for R&D, acquisitions, deleveraging, or for current shareholders to monetize all/part of their investment. There can also be sound tax reasons to go public, as shown by the FIBRAs recently tapping the market, or to turn temporary capital in a private equity structure into permanent capital. (One reason Mexico has seen so few IPOs is that many of its leading private capital are underleveraged and do not need external capital to grow). In some cases, existing public companies spin-off and IPO subsidiaries to provide shareholders with greater clarity and to unlock value.

The Challenges of Going Public

Going public comes with certain risks and challenges. First, there is the time and money associated with preparing the company to operate as a public company and the IPO itself. The initial costs include underwriting, legal, accounting, and exchange listing. Once the company has gone public, there are recurring expenses such as auditing, financial reporting, investor relations, legal, regulatory, and compliance.

Another uncomfortable aspect of going public is increased disclosure. CEOs and CFOs of private companies are used to high levels of discretion and not having their decisions so openly analyzed. Executives will now have to disclose much more about their company’s performance, and field intrusive questions from analysts, investors, and their own IR team.

Consistent and effective communication with investors is essential for post IPO success. It will require an IR team that is dedicated to the tasks of reporting, responding to investor questions, updating online materials, and incorporating market feedback.

Miranda IR’s advice to for a successful IPO

• Start early with an IPO assessment, ideally 1-2 years before the IPO date. The assessment will look at your company’s organization, processes, and business performance to evaluate if an IPO is even a good idea, and if so, when it should take place. It’s important that the business is able to perform early in its public life to satisfy the market. Once you’ve decided that an IPO is the best option, to make the transition easier, start to operate as if you were a public company as early as possible. 
• Prepare the IR team. For pre and post IPO it will be essential to have an IR team in place. An Investor Relations Officer (IRO) will lead that team, and they should have experience in the industry, and strong financial acumen, communication, marketing, and writing skills. This combination of factors isn’t always easy to find, therefore you should start to look early. In addition, it would be good to scout an external IR advisory firm, such as Miranda IR, to help boost the effectiveness of your team and ensure you are meeting IR best practices.
• Design an investor-friendly website. This is arguably the most important IR tool as it will be investors’ first impression of your company’s legitimacy and professionalism,  and where they will go for key information. Knowing what investors need and having the information easily available on the website will keep them happy, and save your IR team precious time, especially around reporting periods. See Miranda IR’s post on building the best IR Website, for more helpful tips. Also, if you’re considering contracting a web developer, Miranda Digital and Design builds first-rate IR websites.
• Define your ESG strategy. Today’s investors integrate ESG into their due diligence process. Having the correct strategy and communication is no easy task. Miranda ESG has years of experience applying the latest global best practices within the Mexican context.
• Have an investor materials package ready to go. It should include the investor presentation, fact sheet, FAQs, and a 3-5 minute video.
• Develop a disclosure policy so that the CEO, CFO, and IRO are all trained on what can be disclosed and that the messaging will be consistent. 
• Determining guidance approach to help decide what level of forward-looking information you will give and be consistent from day one.
• Be active in the registration statement, as management knows the company best. PWC suggests avoiding the temptation to let the underwriters or attorneys take over this process.
• Answer strategic questions such as the rationale for the IPO, Use of Proceeds, Capital structure post IPO, shareholding post IPO, and definition of peers.
• Review alternatives such as a direct IPO vs. SPAC, Local vs. US listing (or both).
• Select Banking syndicate complementarity of bank distribution, strength of research, sector expertise, trust, and value added over years.

EY’s suggested IPO timeline

Post-IPO

After the IPO, the company is just beginning their journey. Now they need to meet the obligations and are under higher scrutiny. Quarterly and annual reporting, and relevant events will need to be published. Also, you’ll need to be aware of compliance, regulatory, and risk management requirements.

Miranda IR

Miranda IR is happy to help your company in its IPO journey, from strategic planning to meeting your IR needs as a public company. We are a Mexico focused firm with decades of experience. Our team has diverse backgrounds in business, finance, IR, ESG, communications, and includes multiple native English speakers.

Sources

• https://www.pwc.com/us/en/services/deals/library/roadmap-for-an-ipo-a-guide-to-going-public.html
• https://www.ey.com/en_gl/ipo/readiness-assessment
• https://www.forbes.com/sites/mergermarket/2021/07/09/mexican-public-companies-delist-amid-languishing-stock-market/?sh=23be0b523164
• https://www.pwc.com/us/en/services/deals/library/cost-of-an-ipo.html#calculatorTool
• http://www.ibri.com.br/Upload/Arquivos/novidades/3949_J.P-Morgan-IR-Best-Practices-Guide.pdf