Following a year of robust IPO market growth in 2024, optimism is high for accelerated IPO activity in 2025. Even in a receptive market, however, companies interested in entering the public markets should understand that the IPO process has changed significantly over the past several years. What used to be a six-to nine-month process now requires planning years in advance.
Previously, companies could engage bankers and legal counsel a few weeks before an organizational meeting, proceed through the SEC process, present their story to investors on a roadshow, develop valuations for the company and price the deal. It was a relatively quick process. Today, that timeline has expanded, and companies begin testing their story early with investors, taking up to 60 meetings to get institutional investors interested. By the time companies get to the roadshow stage, the conversation is largely about valuation.
Regulatory scrutiny has also intensified, requiring companies to deal with a range of diligence issues, including compliance with the Foreign Corrupt Practices Act (FCPA), the Office of Foreign Assets Control (OFAC), and Anti-Money Laundering (AML) regulations, as well as implementing stringent cybersecurity protections. Addressing these concerns requires a long-term approach.
Below, we explore what’s required for today’s initial public offering preparations, when to start, and the steps that are critical to success.
Critical first steps in your IPO process
- Engage advisors early
Engaging experienced advisors at least 24 months before an initial public offering ensures a smooth and efficient process. Advisors can identify potential gaps in readiness, facilitate testing-the-waters meetings, and help get financial and legal frameworks in place well before the organizational meeting.
Establishing advisory relationships at an early stage enables companies to implement operational efficiencies and proactively address challenges before they become critical issues — which translates to resource savings. Your advisor can build efficiencies into the process early and actually make it more cost-effective for you.
- Get your finance organization in order
A well-structured financial organization is essential for a successful IPO. Even private companies that currently report financials on an annual or quarterly basis should recognize that a substantially greater level of scrutiny applies to public companies.
Private companies’ current audits, for instance, are likely conducted under private company standards. Adhering to Public Company Accounting Oversight Board (PCAOB) requires significantly more time — generally at least six months.
Auditors will also need to assess independence, not only for the company itself, but a layer above, including private equity or venture capital stakeholders. Depending on the company’s size, two to three years of audited financials may be required, requiring extensive time and documentation.
- Test your story with investors
If you only start meeting with investors during your IPO roadshow, you’re already behind. In today’s IPO environment, companies should start meeting with investors about two years before the initial public offering.
Starting these meetings early in the process gives you ample time to test your company story and get to know investors. By the time the formal roadshow occurs, investors will already be familiar with the company and your story, allowing discussions to focus on finalizing valuation rather than introducing the business model and value proposition for the first time.
- Act like a public company
Approximately 12 to 18 months before an IPO, companies should begin operating with the discipline and transparency expected of a public company. This includes:
- Defining and monitoring key performance indicators (KPIs)
Companies should consult their advisors and auditors to select appropriate metrics and confirm that those KPIs comply with SEC standards. Advisors who understand the SEC’s hot-button issues can alert you if you’re putting out a KPI that the SEC would deem to be misleading. - Refining financial forecasting
The primary reason public companies get sued is inaccurate forecasting. FP&A teams need to have transparent conversations with operations to ensure the company can execute on forecasted growth in terms of supply chain, facilities, and infrastructure. - Reviewing corporate governance
Companies should also take a critical look at their current board and identify any changes they might need to make as a public company. Consider, for instance, a company that has five board members: the CEO and four private equity owners. You will likely need to add three members to your board who are fully independent and have the experience necessary to be on the audit committee. It can take a significant amount of time to find those people, and they’re often in high demand — so it’s essential to begin thinking about bringing them on well in advance of your IPO.Private companies may not yet have an audit committee — but forming one can help the company get familiarized with the process of quarterly audit committee meetings. This helps company leaders establish habits that will allow them to hit the ground running when they become a public company.
- Prepare for your organizational meeting
Historically, the organizational meeting marked the beginning of the IPO process — but today, it represents one of the final steps before filing. To maximize its effectiveness, companies should arrive at this meeting with a well-developed draft of their S-1 filing, including:
- A business disclosure detailing your story in your voice
Come to the meeting with a corporate narrative, rather than using the meeting for initial drafting. Company leaders understand the corporate story and can articulate it best. With a solid foundation, underwriters can focus on adjusting and finalizing the story.
- A draft of the management’s discussion and analysis (MD&A)
The MD&A should outline KPIs and key business drivers to showcase how you plan to focus your business and project your growth. It’s important to consider the metrics that are driving changes today as well as what could drive results in the future, as both past and future trends can influence forecasting.
- A clearly defined approach to non-GAAP metrics
Companies should define non-GAAP metrics to provide additional insight into their performance and allow for a clearer picture of operational results. - Risk factors to proactively address potential investor concerns
Identify the unique material risks to your business and document them. This will protect you later in the IPO process and can help you avoid costly litigation insurance.
Going public is certainly a team effort — but controlling the narrative is key as you begin the process. With the right team behind you, you can speak with one unified voice and prepare diligently for the journey ahead. For a deeper look at the IPO process, including a timeline, what to accomplish in the year before the IPO, and what you need to know about the pricing and allocation process, download our eBook, “Insider’s Guide to Going Public” or get in touch.
