TheCorporateCounsel.net

With some signs showing that market conditions for IPOs may be improving, more companies may be asking two questions: Can I go public?  And, if so, what do I need to do now?  This HLS blog from Orrick attempts to answer the first question by assessing 79 non-SPAC IPOs that priced through June 30, 2024 and comparing those that traded up versus those that traded down. The data showed some trends in post-IPO performance depending on market cap and trailing twelve-month (TTM) revenue:

Of the 20 companies that listed with a market cap of $1 billion or more, only six have traded down so far. In contrast, of the 12 companies that listed with a market cap between $500 million and $1 billion, half have traded up, and half down. And of the 47 companies that listed with a market cap below $500 million, 39 have since traded down.

Of the 21 companies with around $300 million or more in TTM revenue, only seven experienced early stock price declines, with the results below that threshold much more mixed. Of the 12 companies with between $50 million and about $200 million of revenue, five have traded up and seven have traded down. And of the 46 companies with less than $50 million of revenue, only 8 have traded up.

For those looking to capitalize on an open IPO window, this Cooley blog walks through how to prepare. Steps 3 and 4 in the process address conducting a public company readiness assessment and establishing a timeline to address any issues. The blog lists these considerations (while acknowledging that this is not comprehensive):

Financial reporting and internal controls readiness
– Identify personnel needs.
– Assess Sarbanes-Oxley Act of 2002 (SOX) compliance readiness.
– Assess annual and quarterly financial statement closing timeline readiness.
– Review IT and cybersecurity readiness.

Audit and tax readiness
– Identify key accounting and tax issues.
– Flag “cheap stock” exposure and/or remediation measures required.
– Review past or planned significant acquisitions to determine financial statements required.
– Map Public Company Accounting Oversight Board (PCAOB) audit timelines.

Legal readiness
– Identify and analyze legal risks, such as:

• Data privacy risks, including regulatory compliance (General Data Protection Regulation, California Consumer Privacy Act, and others)
• Other regulatory risks
• Intellectual property risks, including related to disputes, patent coverage, Proprietary Information and Inventions Assignment Agreements, and contractor agreements
• Pending or threatened litigation exposure

– Audit the company’s capitalization table to identify what actions may be required to ensure all company equity is properly authorized and issued.

Governance readiness
– Determine what changes to the executive team may be necessary or desirable.
– Review board composition and identify changes needed to:

• Meet stock exchange independence requirements
• Meet applicable diversity requirements or desired standards
• Enhance the collective expertise of the board to improve performance, anticipate investor demand or meet stock exchange requirements
• Establish stock exchange-compliant committees

– Audit existing governance policies to identify gaps.

Human resources readiness
– Review compensation practices to see if they are competitive, appropriate, and ready to withstand public scrutiny.

– Meredith Ervine