Following a record-breaking year, the 2022 Initial Public Offering (IPO) market has had a markedly slower start amid inflationary concerns and a challenging global geopolitical environment. Heightened uncertainty has led to increased market volatility and has created challenges for the new issue market. In fact, we typically see 95% of companies go public when the VIX (CBOE Volatility Index) is below 25. On June 21, 2022, the VIX sits around 30 and has been trading between 16 and 38 since the start of the year. Despite the market volatility, however, Nasdaq has raised approximately $11 billion across 106 total listings year-to-date, and we see a robust and healthy pipeline of companies looking to go public over the next 12 months.
Get a head start so you are prepared to access the market when the window of opportunity presents itself. Whether you’re a start-up that is interested in learning more about the IPO process or a late-stage company already down the path of going public, there’s no better time than now to create an IPO checklist and to check it twice. To help you get a head start, we’ve created the following checklist of key considerations a company may want to think about and complete ahead of accessing the public markets via an IPO, Special Purpose Acquisition Corporation (SPAC) or a Direct Listing (DL):
Getting Started
- Identify counsel and auditors and determine roles and responsibilities for the complete list of matters pertaining to an IPO, such as the structure of the IPO, registration statement, offering and overview of the company’s governance framework.
- Identify prospective investment bankers and analysts in your sector and engage as appropriate.
- Create a working group of senior management, underwriters, lawyers and accountants. Once the group is established, schedule an organizational meeting.
- Identify the stock exchange the company intends to list on and ensure the company will meet the applicable listing standards. Once identified, conduct preliminary conversations with listing representatives at the exchange and prepare necessary listing applications, including reserving a stock symbol.
- Select financial printer, transfer agent, registrar bank note company. A financial printerassists privately-held companies with registration document filings for the U.S. Securities and Exchange Commission (SEC) and helps companies remain compliant by continuing to perform SEC document filings, such as annual reports, warrant forms and stock certificates, once public. A transfer agent issues and cancels certificates to reflect changes in ownership of the securities of an entity and to act as an intermediary for the company. Meanwhile, a registrar’s function is to maintain the register of the issuer for each issue of securities.
- Obtain central index key (CIK) and CIK confirmation code (CCC) on behalf of the company and the directors, Section 16 officers and 10% holders. CIK is a unique, public number assigned to each entity that submits filings to the SEC and allows the regulator to differentiate between filing entities with similar names. The CCC is an eight-character code used in combination with the CIK to submit a filing via EDGAR.
Preparing for a Public Company Board
- Assess the composition of the current board and corporate committees to identify any changes necessary to satisfy exchange listing and SEC requirements. Prior to this assessment, it is essential to understand the exchange’s requirements for independent directors. With this understanding, then a company is able to recruit independent board members with relevant skills, backgrounds and perspectives. During the recruiting process, distribute D&O Questionnaires to all officers, directors and 5% holders and subsequently determine any conflicts of interest.
- Create a corporate governance framework appropriate for a public company. This may require revising organizational documents necessary for public companies, such as the Certificate of Incorporation, Corporate Bylaws, Registration Rights Agreements and Stockholder Agreements. Create Corporate Governance Guidelines.
- Prepare corporate governance policies, including Code of Business Conduct and Ethics, Corporate Governance Guidelines, Insider Trading Policy, Regulation FD Policy, Related Party Transaction Policy, Communication with Stockholders Policy, Disclosure Controls and Procedures and Whistleblower Policy. During this time, it’s also important to consider the formation of a Disclosure Committee on the board of directors.
- Secure a confidential board portal, such as Nasdaq Boardvantage, for all corporate governance and compliance documents, confidential director information, director orientation and onboarding materials, investor data, analyst reports and board meeting materials.
- Engage a compensation consultant to analyze current compensation practices and policies, including equity and non-equity incentives for staff and board members and identify gaps for remediation.
- Build out your senior management team to operate as a public company; consider key hires in financial reporting, investor relations and corporate governance.
Establishing an Enterprise Risk Management Framework, Program and Creating a Comprehensive Risk Register
- Engage the internal auditor to lead the collection of a comprehensive library of corporate risks; review the Comprehensive Risk Register with executive management team, the external auditor and the Board.
- Shore up your cybersecurity defenses and technologies to keep up with the digital transformation of the economy and to protect your business, clients and data from bad actors.
Establishing Financial Reporting Procedures
- Engage an external auditor experienced in the IPO process and public company financial reporting. Once an external auditor has been selected, prepare and finalize audited financial statements for prior years.
- Identify sensitive accounting policies and SEC “hot issues” for financial reporting with the external auditor. Ensure they are considered and discussed with the national office and included in financial filings.
- Create corporate goals and operating metrics beyond GAAP financials that can be used to measure the business. Be sure to work with investment bankers and company leadership to create these metrics.
- Incorporate ESG best practices given the uptick in evolving regulatory reporting requirements, investor input, and the increase of corporate sustainability commitments by corporates.
- Engage an independent valuation expert to perform regular stock valuation to assist with options pricing. For pre-IPO companies, quarterly valuations are the norm.
Ensuring Internal Controls and a Corporate Compliance Program
- Discuss internal controls—such as material weaknesses or significant deficiencies—with your advisors and underwriters.
- Review Sarbanes-Oxley (SOX) Act requirements and engage your external accounting firm in developing your SOX Program to ensure compliance.
- Engage an experienced D&O Insurance broker early in the process to secure D&O insurance to ensure your directors and officers are adequately protected at the time of the IPO.
Considering Public Communications
- Review with counsel the rules that govern your public communications during the IPO Then, standardize public communications and develop consistency for external communications. Create and outline the process for review of press releases, media interviews and public appearances before and after the IPO.
- Review corporate website to ensure accurate and updated information with an eye for information necessary for investors. Ensure review by counsel to ensure the website is consistent with SEC rules on public communications prior to and after the IPO.
Confidentiality and Due Diligence of Corporate Documents
- Confidentiality of all pre-IPO documents is of the utmost importance; ensure confidentiality internally and discuss with counsel the process of seeking confidential treatment from the SEC.
- Be prepared for extensive due diligence, which includes, but is not limited to, a review of minutes, capitalization records, material agreements, historic options grants and more. It may also be helpful to use an online database for due diligence.
- Review ongoing, pending or threatened litigation and assess the potential impact on the IPO, if any, and consider the impact of filing an IPO on your negotiation and settlement.
These steps and key learnings are based on our 52-year track record of helping thousands of companies successfully transition to public markets.In fact, at the end of last year, Nasdaq had approximately 3,736 U.S. operating companies representing a market value of about $27 trillion. Regardless of the path a company takes to go public, once you’re a public company, there are new and unique challenges. In the second part of this two-part series, we’ll delve deeper into what CEOs, executive leaders and board members need to know about key annual governance considerations as a public company.
