Your company is on the brink of change, but is now the right time to consider new transactions? Whether it’s to become a public company, acquiring new assets or selling existing ones. The financial climate might be a source of worry for future prospects, and ambitions. Here’s an interview with some of the finest financial advisors on the market to answer these questions with us.
- Why do you want to IPO
- Assess the necessity of the IPO
- Hire an advisor
- Prepare the paperwork in advance
- Re-think the work-streams in advance
- Manage your day-one expectations
- Prioritize long term growth
Intro:
Your company is big enough to consider an IPO, make new acquisitions, or you’re thinking about selling, but the financial climate screams hibernation, immobilism? Don’t poke the bear market or else! But is it true, and if yes, how true? In short, should you try your luck when there might be no options available? How do you know which practices will continue to lead growth for you and your company in these uneasy times? Well, at Fuse, we thought we might as well ask experts: people whose job it is to advise companies like yours about strategic operations and business growth.
That’s why last month, our CEO Russell Lemann sat (though via Teams) with Barbara Spurrier and Lucy Tarleton, respectively CEO and Director at CF Pro. Barbara’s pedigree is awe-inducing: She spent 27 years at Cambridge Equity Partners Ltd, both as partner and director, and sat as an executive on the board of countless other profitable companies before founding CF Pro. Lucy’s career is not less impressive: She worked on the London Stock Exchange for half a decade before becoming a manager, then director at the PwC’s specialist Capital Markets group. She joined CF Pro in 2021.
CF Pro is a strategic and financial consultancy firm established in 2014. Seemingly integrated as part of your finance team, CF Pro helped many companies over the years to support their business operations and supply them with the best practices to go through IPO processes.
Russell interviewed them on three topics: IPO, buy and sell. For each of these situations, Barbara and Lucy gave their thoughts, warnings or recommendations, situating their advice within the current financial context. What came out of this conversation was, on the one hand, timely pieces of advice to lead growth in today’s mild financial recession. On the other hand, they sparked it with timeless recommendations for anyone looking to buy, sell, or go through an IPO.
The discussion started with how to assess this year’s slowing down of financial activities. How worried should we be? What sorts of actions effectively work in such situations? Later, the three of them went over what IPO’ing, acquiring new assets, and selling your company in 2023 will be like.
The Climate:
Everyone seemed to agree that 2023 will be tricky year for risky operations, though not averse to entrepreneurship. This year’s figures are way down compared to last year’s. This is due, in part, to well-documented valuations that had no business being that high in the first place. This created a skew in the figures which trumps in the eye of today’s investor. Part of this slowing down is due to a correction of last year’s infatuation.
Another reason is the climactic and geopolitical struggle European countries find themselves in, over which no one in the financial sector bears any responsibility, but which we all have to deal with. In total, 2023 will be a slow year. We will see more bears this year than bulls. How impactful is that for your wish to become a public company? For your team to acquire new businesses, or sell your own? Well, as always for topics grounded in reality: it depends.
Barbara is unequivocal: companies at whatever stage might profit from investing in restructuring their operations in a way that’s sustainable under any kind of cycle. The objective is a consistent growth trajectory through cycles. Profiting from a boom in 2021 to fall down with your head underwater by 2022 is not a preferred option, she remarks.
An example of sensible business strategy companies are using to mitigate a slow 2022-23 is “carve-outs” in their “non-core "areas. It may sound like a gym routine, but it’s not, at least that I know of. It’s a transformative method for companies. What it means, in short, is to look at divesting some parts of your company by selling an equity stake or the business unit. You are effectively selling the operations to someone else to focus more on your core operations.
This kind of transaction, Barbara shared, could help companies’ efficiency during a period believed to inevitably unfold into a full-on bear cycle.
IPO:
Can companies IPO in a bear market, asks Russell? “What would you tell one of your clients that said: I am ready and want to IPO in the next 6, 12, 18 months?”
“If they are prepared, fine.” Barbara quickly answered, before going into more details. “They need to have a growth story, a solid team and a growth trajectory.” A good growth story is indispensable in a bear cycle when investors have a lower risk appetite. A solid team pertains to the increased workload that any company going into an IPO must deal with. Lucy gave some extra insight on the matter.
“Before going into an IPO, you have to ask yourself ‘why’ you want to do that. What are the benefits and challenges, does it fit my company’s culture?”, “The sooner you prepare the better, financial workstreams will be undertaken with work; are they fit for the increased workload and continuing the day-to-day operations? Understand your team’s bandwidth is key.”
“Do you have any audited accounts? Transaction records? If you are going to AIM you need to have 3 years of tracked records under International Financial Reporting Standards; though it sounds like straightforward procedures, there are many steps which are tricky and time-consuming. Getting your accounts into order is a steep climb.”
To help with that, they both said, you might want to appoint advisors early. They will facilitate making deals and help you with building your profile, deal structures, office sizes etc…
Another area to explore is corporate governance. A partial review of chains of command and director’s independence are usually good things to review before going for an IPO
Companies need to manage their expectations too, when going for an IPO in such a climate. While they should not expect high valuations or lots of money on day one, being valued at the lower end of the range allows for a positive growth trajectory while the market catches up, which is a positive.
Finally, Lucy reminds us “IPO is just a steppingstone to become a public company. It’s not an end in itself. You should use an IPO for longer-term growth, not just flexing getting the deal done.”
Buying:
What about making acquisitions during the bear cycle?
According to Barbara, there are a few things to keep in mind: If you do, make sure you do the due diligence thoroughly, as you don’t want to be buying a bag of worms in any climate. Especially not now. Another thing which comes with thorough due diligence is it shows you whether it’s the right fit for your company.
At CF Pro, they have collaborated with companies that have grown too much over the years and are now looking at non-core areas which they want to hive off into separate companies, sell in private equity or even float as a separate entity (the carve-outs mentioned earlier). It’s always a good time to think about Acquisitions, but make sure you have a stronghold of your own balance sheet going through that.
In conclusion, there’s never a bad time to acquire, only bad ways.
Selling:
Moving on from acquisition, Russell went on to ask the expert consultants at CF Pro what they thought about selling your company.
Their unequivocal response was: “Get an advisor early.”
“They know what you don’t know. Who to approach, who’s got the appetite for your type of business. They also act as a barrier between you and the buyer. It might not be completely intuitive, but the diplomacy of an advisor enables the negotiation process to be less stressful and filled with less angst. This makes post-transaction integration much smoother.
So, before anything else, make sure you get a good corporate Finance advisor. They will help you prepare and assess that you’ve got the resource for selling, and that you’re in the right frame to sell. It will also help you ensure that the paperwork is good as it can be before you sell. Preferably not in a distressed and rushed situation.
“I understand that it may come across as biased, since we are such advisors at CF Pro” remarked Barbara with a dainty smile, “but look at it this way: I wouldn’t try to do an operation myself on my hip for example” I understand, Barbara, my hips too are killing me, and I will most definitely not ask a finance advisor to mess around there on their own. I would ask a qualified surgeon.
How much overlap exist between IPO and Selling processes?
Russell then asked how much overlap existed in workstreams when you compare the process of selling and that of going through an IPO.
The answer is: There is overlap. The financial documentation, record standards, and the operational governance review require a similar approach in terms of workstreams. That prevent any transaction from being full of caveats and warranties, which you would worry about, not knowing what’s in your company.
Lucy then added that, sometimes, companies like to explore what is called a dual track: either an IPO or a sales product or trade sale. Though it is hard to run two processes at the same time, there is enough overlap in the sense that you’re going to go under similar scrutiny about similar things: financial history and records, and corporate governance.
The financial work streams are remarkably similar. Once again, she reminded us to make sure you have enough bandwidth within your team to go through with such a dual-track process.
Conclusion:
For any of these scenarios, key elements stay the same: Assess your needs and motivation, evaluate your team’s strength, and appoint experts. In two words: Prepare Ahead. Preparation is what will make the most difference.
You can IPO in the bear market, people do but you need to have a growth story and perhaps expect a lower day-one raise, and evaluation (which can be a positive down the line for your growth story).
So, expect valuations slightly at the lower end of your range. Remain mindful about acquisitions and consider carve-outs. The current climate calls for sensible decisions.
.png)
