morganfranklin consulting: are you ready for an ipo?

Are You Ready for an IPO?

Speaker

Shawn Degnan, Managing Director

Leader – Growth Markets

MorganFranklin Consulting

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About MorganFranklin Consulting

MorganFranklin is an execution-oriented business consulting and technology solutions company.

We deliver financial management, performance improvement, and technology enablement solutions

to industry and government clients.

Business Facts

Founded in 1998

Headquartered in the Washington, D.C. area

European operations established in London in 2007

National presence and international reach

Diverse full-time workforce comprised of industry, global consulting, Big Four,

and government professionals

Technical excellence: CPA, CIA, CISA, CISSP, MCSE, RCDD, MBA, Ph.D., PMP

Fast access to a powerful network of trusted partners with solid industry experience

Unique blend of industry and government clients

Industry recognition as a top consulting firm in the U.S.

Recognized for industry-leading workplace best practices


Agenda

Understanding Your Options – Is an IPO Right for Your Company?

Key Tasks Before, During, and After the IPO

Technology and Process Considerations

Roles of the IPO Team

Case Study



Options for a Capital Raise, Exit or Liquidity Event

Sale to a Strategic Buyer

Sale to a Private Equity Firm

Joint Venture or Strategic Alliance

Debt

ESOP

Exempt (144A) Offering

IPO



Advantages of IPO

Source of Increased Capital

Public Valuation of the Company

Public Company Stock = Currency for Acquisitions

Access to Capital Markets for Future Financing Needs

Can Retain Control

Prestige for Company & Management

Publicity

Attract Employees

Stock Options as a Compensation Alternative



Disadvantages of IPO

Going Public is an Expensive Process

Disruption of Day-to-Day Business Operations

Management Focus on IPO

Close Scrutiny from Public/Investors/Regulators

Loss of Confidentiality

Increased/Costly Reporting Requirements

Quarterly Earnings Pressure



Timeframe Capability Needs Key Areas of Focus

Long-Term Planning • Strategy & Planning

• IPO Experience

• Design/Build IPO Roadmap & Key

Task Calendar

• Investor Awareness

• Growth & Continued Performance

Pre-IPO Readiness • IPO Experience

• Hands-On Resources

• Design/Build Public Company

Ready Processes & Technology

• IPO Filing

• Growth & Continued Performance

IPO Cutover & Initial

Operations

• Public Company

Expertise

• Hands-On Resources

• Design/Build Public Company

Ready Processes & Technology

• Establish & Meet Investor

Expectations

• Public Company Reporting

• Growth

Ongoing Operations • Cost Effective Control

• Knowledge Absorption

• Operate/Maintain

• Refine Processes & Technology

• Internal Controls



While 12-18 months might be ideal for completing a full scale IPO readiness,

most companies don’t plan or prepare for IPOs that far in advance. Why?

Costs & Resources

Primary Focus is Growth

Markets Change Unexpectedly

Opportunities Present Themselves Quickly

Businesses Must Respond Rapidly



IPO Readiness Should be Viewed as a Continuum: The IPO Puzzle is Not Complete at Filing; Only Critical Functions Must be A+ Capable

IPO Planning & Preparation Checklist

Assess Current vs. Public Company Operations

Assess Financial & Regulatory Reporting

• Capacity & Quality of Staff

• Processes & Systems

Improve Processes & Systems for Financial & Management Reporting

• Streamline & Automate Processes

Optimize Organization Structure, Roles, & Responsibilities

Design IPO Roadmap & Key Task Calendar

• Audit Readiness

• Registration Statement

• Process Improvement

• Technology Optimization




Review & Document Accounting Policies

• Compliance with SEC Requirements – More Stringent Accounting & Disclosure than for Private Companies

• Areas of SEC Focus & Comment:

• Revenue Recognition

• Business Combinations

• Impairment Analyses

• Stock Compensation – ”Cheap Stock”

• Fair Value

• Segments

• Capitalized Software

• Debt & Equity Instruments

Prepare for SEC Comments

Document all Accounting Positions




Prepare “SAS 100 Ready” Interim Financial Results (8 Quarters)

• Revenue & Expense Cutoff

• Quarterly Stock-Based Compensation Expense

• Interim Accruals

• Up-Front Planning to Ensure an Efficient Review by Auditors

Prepare for Sales & Investor Awareness – Roadshows

Address Growth & Continued Performance



S-1 Production

Produce Regulation S-X Compliant Financial Statements (the F-Pages)

• Calculate EPS

• Prepare EPS & Segment Disclosures

• Research & Document Technical Accounting Issues

• Evaluate Impact of New Accounting Pronouncements (New Disclosure Requirements)

Compile Summary & Selected Consolidated Financial Data (3 & 5 years)

Prepare MD&A

• 3 Fiscal Years & Applicable Interim Periods

• Stock Compensation & Valuation Disclosures (12 Months Prior to Most Recent Balance Sheet Date)

• Critical Accounting Policies – Address Judgmental Areas

Respond to SEC Comments – Be Prepared!

Prepare for the Comfort Letter Process

• Maintain Supporting Binder for all Financial & Operational Information



After the IPO, There is Much to Address…

Ongoing Operations

Implement Streamlined & Automated Processes

Train Employees on Technical Accounting Matters

Establish Internal Audit Function

Develop & Maintain Corporate Accounting & Operational Policies & Procedures

Sarbanes-Oxley 404 Compliance

Prepare Documentation & Design Gap Analysis Early

Don’t Forget About IT

Identify Gaps & Perform Remediation

Know Material Weaknesses Need to be Disclosed in Form S-1

Leave Sufficient Time for Testing

Prepare 404 A – Management’s Assessment of Internal Controls

Obtain 404 B – Auditor’s Assessment of Internal Controls



After the IPO, There is Much to Address…

Post-IPO Reporting Requirements

Prepare Annual Reports on Form 10-K

• Prepare for Annual Audits

Prepare Quarterly Reports on Form 10-Q

• Prepare for Quarterly SAS 100 reviews

Prepare for Earnings Calls & Press Releases

Prepare for Form 8-K Requirements – Stay in Touch with your SEC Counsel


Technology and Process Considerations

Common Misconception – Private Company is Ready for the Public Market

Companies Quickly Encounter Financial & Operational Challenges

More Stringent Documentation Requirements for Accounting Policies

Increased Risk Associated with Restatement

Changes to Historical Financial Statements & Additional Disclosures

Required to Comply with SEC Requirements

Accounting System Inadequacies

Data, Data, Data – Timely & Accurate

More Rigorous & Reliable Forecasting & Budgeting

Stringent Corporate Governance Requirements

Professional Investor Relations Function


Roles of the IPO Team

Team Member Role

Internal IPO Team

• Chief of Staff

• “The Hustler”

• The Accounting Nerd

Not Just Finance & Accounting

SEC Counsel Knowledgeable Regarding Company & IPO Process

(Hands-On)

Investment Bankers Manage, Market, & Support the IPO

Underwriters’ Counsel Advise Underwriters on Legal Issues

Independent Auditors Must be Registered with PCAOB

IPO Advisor Technical Issues, Draft Statements & MD&A, Coordinate

Process (Hands-On)

Financial Printer Knowledgeable Regarding SEC Printing & Filing

Guidelines

Investor Relations Internal or Outsourced


Case Study

Challenge

Company Experienced Exponential Growth Since Founding in 2006 &

Lacked Accounting & Finance Infrastructure to Meet IPO Timeline

Required Assistance with:

• S-X Compliant Quarterly Financials for Three Years

• S-1 Registration Statement

• Technical Accounting

• Sarbanes-Oxley Section 404 Compliance

Organizational Meeting in Five Months

Initial S-1 Filing in Six Months


Questions & Answers

Are You Ready for an IPO?

morganfranklin consulting: are you ready for an ipo?

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