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Preparing for an IPO requires aligning with evolving regulatory and market expectations while ensuring rigorous compliance to avoid costly pitfalls. Subpar preparation can lead to delays, penalties, or even delisting, jeopardizing investor trust and company reputation.
Below, we explore the most common IPO compliance challenges, the importance of robust governance, and best practices to ensure readiness for public listing.
Underestimating the scope and complexity of IPO preparation often results in governance gaps, inadequate risk assessments, and regulatory compliance issues.
According to studies on IPOs, one of the most critical mistakes made by businesses planning to seek outside investments is viewing the process as a purely financial transaction. Meanwhile, companies going public need to undergo a full transformation, aligning their teams, workflows, and technology with new regulatory and market frameworks.
Underestimating the time required to make a company IPO-ready is another common pitfall. In practice, preparing for an IPO can take as long as 18 to 24 months, while any attempts to speed up the process can lead to omissions, compromised preparation and having the IPO delayed.
In some situations, businesses may fail to assess all the risks or adopt a Risk Control Matrix (RCM) relevant to their business's specific needs. Avoiding this pitfall requires vigilance in prioritizing the risks, performing gap analysis, and aligning the IPO preparation agenda with the risk assessment.
When companies fail to ensure transparency in their organization, business model, or financial performance, it may lead to misunderstandings, reduce investor interest, and generate negative publicity. Instead, businesses need to set realistic valuation and provide effective disclosures to ensure investor confidence.
Among IPO legal challenges, noncompliance at any of the operated jurisdictions can have devastating consequences. As demonstrated by the unsuccessful IPO of Chinese taxi-hailing app DIDI, which became public on NYSE, a company may have to delist for failure to ensure regulatory compliance in one of its jurisdictions.
Conversely, implementing strong multi-jurisdictional compliance ensures good standing with regulators, signals that the company has strong internal controls, and increases the company's value in the eyes of investors.
Strong corporate governance is the backbone of a successful IPO journey. While the regulators and stock exchanges set their own requirements for the company's governance and board composition, organizations need to establish proactive governance practices, balance the interests of all investors, and align incentives with long-term objectives.
On the other hand, weak corporate governance during an IPO can raise investor concerns and destroy the company's value. As demonstrated in the WeWork case, involving $37 billion devaluation and abandoned public listing, investors' unease with weak governance can be one of the major IPO pitfalls, which needs to be addressed early in the preparation stage.
Based on the analysis of IPO compliance pitfalls, organizations seeking to go public can draft a clear roadmap to close gaps, overcome compliance challenges and implement IPO transformation.
Any roadmap to public listing starts with a pre-IPO readiness assessment, which aims to identify the gaps between the current state of the organization and the regulators' and market expectations.
Such an assessment should address key areas such as finances, compliance, governance, and risks, providing executives with a clear picture of changes required to prepare for the listing and ensure compliance.
Exchanges and regulators require listed companies to implement financial reporting according to pre-defined frameworks.
Companies need to allocate sufficient time and resources to bring their financial system and standards in alignment with the requirements, develop processes for retrieving necessary data, and integrate these processes into their IT infrastructure.
Regulatory adherence is critical for IPO success, and companies need to ensure compliance with both IPO demands, such as the SOX framework, as well as regulatory compliance requirements across jurisdictions.
IPO candidates pursuing their compliance agenda should explore opportunities to automate their regulatory adherence and implement technology to simplify IPO compliance.
When a company is planning to go public, it will become subject to more formal risk management processes than privately held organizations.
Businesses need to evaluate major risks, including compliance risks in IPO, benchmark against similar organizations, and prioritize and develop internal controls and processes to address any deficiencies.
Establishing a proper governance structure aligned with regulators' and investors' expectations is instrumental for IPO success.
While companies going public need to adjust their boards, they need to make and implement a number of other key governance decisions, including setting up a steering committee and identifying IT stakeholders and technology required to execute their agenda.
Implementing strong IT infrastructure and modern entity management tools is viewed among the best practices for IPO compliance readiness.
Specifically, entity management software helps companies implement their pre-IPO transformation by enhancing their IT infrastructure and data handling practices via:
IPO compliance presents a major challenge for any business seeking outside investments. Preparing for public listing requires identifying the most common IPO compliance pitfalls and addressing them by employing proven strategies and required resources.
Entity management tools are essential to navigate the complexities of IPO compliance seamlessly by transforming IT infrastructure and providing the teams with full control over their data. For more information, explore how Athennian's entity management platform can streamline your IPO compliance and schedule a demo today!
"Very easy to use, modern interface, excellent support. Athennian has an amazing conversion team. They helped us migrate all of our data and the training was very good."
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“When we were reviewing other entity management systems on the market, in some cases, we were not comparing apples to apples. But with Athennian, there was really no comparison. The paralegals were so excited to come on board.”
"There are so many things I like about this program, but the one thing that really stands out is the user friendly interface. The program is fast and allows me to enter corporate information very quickly and efficiently. I would also like to note that Athennian provides the most the fantastic customer service."
