Pre IPO PlanningPre IPO Planning

IPO not a one-time transaction but IPO not a one-time transaction but rather a long transformation process rather a long transformation process (at least 2-3 years) lead time before (at least 2-3 years) lead time before IPOIPO

Clear articulate objectiveClear articulate objective Carefully deployed corporate Carefully deployed corporate

strategies and financial plan strategies and financial plan

StepsSteps

Diagnostic reviewDiagnostic review - company awareness of pro and - company awareness of pro and

cons of IPOcons of IPO Alternative availableAlternative available Company structure and operationsCompany structure and operations

Restructuring and Reorganization Restructuring and Reorganization

- to meet requirement of listings- to meet requirement of listings - strengthen financial reporting - strengthen financial reporting

structurestructure - acquire management talent to max - acquire management talent to max

business valuebusiness value - strengthen financial position- strengthen financial position - Internal policies to meet regulators - Internal policies to meet regulators

requirement requirement

Shortlisting of professional advisorsShortlisting of professional advisors

Issue managers and underwritersIssue managers and underwriters - underwriter invite other investment - underwriter invite other investment

bankers to participate in joint distribution bankers to participate in joint distribution of the offering (syndicate)of the offering (syndicate)

- member of syndicate make firm - member of syndicate make firm commitment to distribute certain commitment to distribute certain percentage of entire offering and held percentage of entire offering and held finanically responsible for unsold sharesfinanically responsible for unsold shares

SolicitorsSolicitors - responsible for establishing due-- responsible for establishing due-

diligence on contracts, employment, diligence on contracts, employment, management etc. – to minimize management etc. – to minimize potential liability of directors as to potential liability of directors as to risk and sustainabilityrisk and sustainability

Reporting accountantsReporting accountants - prepares reports containing - prepares reports containing

company current finances and company current finances and financial history for inclusion in financial history for inclusion in prospectus and other public prospectus and other public documentsdocuments

Other professional advisorsOther professional advisors

Preparation for prospectus and board Preparation for prospectus and board memorandummemorandum

- latest details and information in - latest details and information in prospectusprospectus

- profiling the business- profiling the business - successfully communicate stories - successfully communicate stories

and growth prospect to investorsand growth prospect to investors - seek board of directors approval for - seek board of directors approval for

launching launching

IPO launchIPO launch

- after meeting all listing and - after meeting all listing and regulations requirement by SCregulations requirement by SC

Pro and Cons of IPOPro and Cons of IPO

Advantages:Advantages: Potential capital growthPotential capital growth -raise additional funds to finance -raise additional funds to finance

activitiesactivities - without periodic interest payments- without periodic interest payments

Institutional investmentInstitutional investment

-easily attract institutional investors -easily attract institutional investors without negotiationwithout negotiation

- wider investors base- wider investors base

Enhanced corporate profile and Enhanced corporate profile and improved valuationimproved valuation

- listing adds value to firm- listing adds value to firm - increase business opportunities- increase business opportunities - amplifies brand and product - amplifies brand and product

awareness awareness - increases liquidity and valuation of - increases liquidity and valuation of

firmfirm

Employees’ shareholding schemeEmployees’ shareholding scheme

- opportunity to implement ESOS- opportunity to implement ESOS - boost employee morale, retain staff - boost employee morale, retain staff

and attract potential employeesand attract potential employees - increase value of company- increase value of company

Profitable exit strategyProfitable exit strategy

- exit strategy for key owners- exit strategy for key owners - work towards increase share price - work towards increase share price

and exitand exit

DisadvantagesDisadvantages

Loss of control and exposed to Loss of control and exposed to takeoverstakeovers

-have to share ownership with other -have to share ownership with other investorsinvestors

- CEO answerable to board- CEO answerable to board - appoint independent directors – - appoint independent directors –

ensure check and balancesensure check and balances - can take control of company by - can take control of company by

othersothers

Higher reporting requirementHigher reporting requirement

- additional obligations and - additional obligations and requirementsrequirements

- need to meet acceptable standard - need to meet acceptable standard of corporate governanceof corporate governance

- prepare comprehensive audited - prepare comprehensive audited financial statementsfinancial statements

- publish annual reports- publish annual reports - increase costs- increase costs

Accountability of public Accountability of public shareholdersshareholders

- have to consider interest of other - have to consider interest of other shareholders shareholders

- interest difference from objective- interest difference from objective

Loss of privacyLoss of privacy

- media interest and full disclosure - media interest and full disclosure requirement regarding its operations requirement regarding its operations and plansand plans

- compensation to directors, stock - compensation to directors, stock option plans, details of significant option plans, details of significant contractscontracts

- reveal timely information on - reveal timely information on sensitive issues – on-going and time sensitive issues – on-going and time basis to prevent insider trading basis to prevent insider trading

High Cost of ListingHigh Cost of Listing

- high cost of planning and launching - high cost of planning and launching IPOIPO

- tedious and require many parties – - tedious and require many parties – issue managers, underwriters, issue managers, underwriters, solicitors, accountants etcsolicitors, accountants etc

- example RM2 million to raise RM10 - example RM2 million to raise RM10 million in ACE marketmillion in ACE market

Other success factorsOther success factors

TimingTiming ProfitsProfits ReputationReputation ExpectationsExpectations

What to look out for in a prospectusWhat to look out for in a prospectus

Key owners – track records and Key owners – track records and quality of managementquality of management

Family owned or diffuse ownershipFamily owned or diffuse ownership Existence of businessExistence of business

Management team – qualifications Management team – qualifications Corporate finance experiences: M&A, Corporate finance experiences: M&A,

Share Buybacks, ProposalsShare Buybacks, Proposals CEO – operational efficiency – CEO – operational efficiency –

experience and relevant in core experience and relevant in core business activitiesbusiness activities

Board of DirectorsBoard of Directors Independent directors – adequate Independent directors – adequate

financial training and related work financial training and related work experiencesexperiences

Types of share offeringsTypes of share offerings 2 types - offer for sale and public 2 types - offer for sale and public

issueissue Offer for sale = sales proceeds go Offer for sale = sales proceeds go

directly to vendordirectly to vendor Public issue = go to companyPublic issue = go to company If majority is offer for sale : caution = If majority is offer for sale : caution =

exit for key ownersexit for key owners

Explain how to use the proceedsExplain how to use the proceeds - to fund working capital- to fund working capital - reduce bank borrowing- reduce bank borrowing - future expansion- future expansion

Future prospect statedFuture prospect stated - provide for some discount- provide for some discount - expansion plans realisitic and - expansion plans realisitic and

reasonablereasonable - size and capacity of the company- size and capacity of the company - owners too ambitious? - owners too ambitious?

Understand company background, Understand company background, production capacity, type of production capacity, type of products, locations of factories, key products, locations of factories, key major supplier, customers and major supplier, customers and competitiors competitiors

Sustainable competitive advantages Sustainable competitive advantages such as possession of any intellectual such as possession of any intellectual properties, technology, patents, properties, technology, patents, trademarks, licenses, strong and trademarks, licenses, strong and recognisable brandsrecognisable brands

DominanceDominance - in particular geographical region, - in particular geographical region,

niche market, wide distribution niche market, wide distribution network, strong marketing team, and network, strong marketing team, and R&D capabilityR&D capability

Risk factors associate with investingRisk factors associate with investing - specific risk eg dependence on few - specific risk eg dependence on few

customers and suppliers, expiration customers and suppliers, expiration of patents and special arrangement of patents and special arrangement with major shareholders, supplier with major shareholders, supplier and customersand customers

Offer priceOffer price - expensive? Valuations- expensive? Valuations - if above overall market average - if above overall market average

valuation, might be sell down after valuation, might be sell down after IPOIPO

- use PE ratio and Price-Book ratio to - use PE ratio and Price-Book ratio to determine value of companydetermine value of company

Dividend payout policyDividend payout policy - it is stated- it is stated - compute potential dividend yields - compute potential dividend yields

from company’s dividend payments.from company’s dividend payments.