What is Pre-IPO?
Pre-IPOs, or pre-initial public offerings, refer to the phase before a company’s initial public offering which involves comprehensive preparations and strategic considerations. During this phase, companies focus on financial audits, compliance with regulatory requirements, and disclosure obligations. The pre-IPO stage is crucial for setting the foundation for a successful IPO, ensuring that companies are well-positioned to meet the demands of the public market and maximise their growth potential. Discover the significance and key aspects of the pre-IPO stage in your journey towards becoming a publicly traded company.
Advantages of Being Publicly Listed
If you’re unsure whether you should take the first step, consider the following benefits of being publicly listed:
Access to Investors
If your company is seeking additional capital for growth and expansion, being publicly listed gives you access to a wider pool of investors. The Australian Stock Exchange (ASE) provides access to a wide pool of investors, both institutional and retail, offering opportunities for significant capital inflows.
Visibility
Not only will you have access to more investors, but being publicly listed means your company’s market credibility and brand awareness will increase. Having your business publicly listed will help increase visibility from potential customers, suppliers, and even business partners. From your stakeholder’s perspective, it can also build a better reputation for your company.
Higher Valuations
The increased visibility as a public-listed company can potentially lead to a higher valuation for a company, with easier access to capital through a broader pool of investors and enhanced liquidity for shareholders.
Opportunities For Employee Incentives
Being publicly listed can enable companies to offer employee share schemes, allowing employees to participate in the company’s success and aligning their interests with those of shareholders. This can help attract and retain top talent, fostering a motivated and committed workforce.
Pre-IPO Requirements in Australia
In Australia, companies intending to go public through an Initial Public Offering (IPO) must meet several pre-IPO requirements. These include:
Preparation and Planning
The company must ensure its internal systems, processes, and controls are capable of meeting the demands of a public-listed company. The company will also typically assemble a team of advisors, including investment bankers, lawyers, accountants, investor relations and share registrar experts who have the know-how in pre-IPO services to guide it through the IPO process.
Due Diligence
The company must conduct thorough due diligence to ensure compliance with all relevant laws and regulations. The company must also make the required regulatory filings and obtain required approvals from authorities such as Australian Securities & Investments Commission (ASIC) and Australian Securities Exchange (ASX).
ASX Listing Rules Compliance
The company must apply for admission to the Australian Securities Exchange (ASX) and comply with its listing rules. The ASX Listing Rules specify the minimum admission criteria with regards to company structure, size and the number of shareholders.
Financial Reporting and Audits
Companies must typically provide at least three years of audited financial statements. An independent auditor must audit the company’s financial statements, ensuring they comply with Australian Accounting Standards.
Corporate Governance
A company must have a board of directors that includes a majority of independent non-executive directors and also establish a robust corporate governance framework in line with the ASX Corporate Governance Principles and Recommendations.
Preparation of Prospectus
The company must prepare a prospectus that complies with the requirements of the Corporations Act 2001 (Cth). The prospectus must provide detailed information about the company’s business, financial status, risks, and the terms of the offer. The prospectus must be lodged with the Australian Securities and Investments Commission (ASIC) for review and approval.
Fees
The costs associated with a pre-IPO in Australia can be significant and vary depending on the size and complexity of the company and the specifics of the IPO process. Here are the main categories of costs that companies typically incur during the pre-IPO phase:
- Underwriting Fee: Used to compensate the underwriter for assuming the risk of buying and reselling the securities in case they are not fully subscribed by investors.
- Placement Agent Fee: While optional, you may consider employing placement agents to help identify potential investors and facilitate the transaction. These agents may charge a fee based on a percentage of the funds raised or a fixed fee.
- Legal and Due Diligence Fees: Primarily for engaging with legal and accounting firms to assist with due diligence, regulatory compliance, and drafting the necessary legal documentation for the pre-IPO placement.
- Listing and Exchange Fees: In Australia, companies listing on the Australian Securities Exchange (ASX) are required to pay listing fees, which cover the costs associated with the listing process and ongoing compliance requirements.
- Brokerage Fees: Similar to placement agents, brokers may be involved in the pre-IPO placement to help facilitate the transaction and connect issuers with potential investors, they may charge brokerage fees based on the value of the placement.
Additional Factors for IPO Success
Beyond the fundamental requirements, several additional factors can significantly influence the success of your IPO:
Financial Performance
A strong financial track record is crucial for your company if you’re considering an IPO. Potential investors will look for consistent revenue growth, profitability, and a solid financial position. Your company should have a compelling financial story supported by audited financial statements. Meeting the financial threshold for listing on the Australian Securities Exchange (ASX) is an important consideration.
Size and Scale
Typically, companies pursuing an IPO placement in Australia are of a certain size and scale. There is no strict rule, but companies with a substantial market presence, a significant customer base, and a well-established business model tend to be more attractive to investors. Your company should have achieved a certain level of maturity and market recognition.
Growth Potential
Even though being publicly listed will give you a greater pool of investors, companies with promising growth prospects will find it easier to secure capital. Your company should have a compelling business plan outlining future expansion strategy, potential market opportunities, and a clear competitive advantage. Demonstrating a scalable business model and a strong market position will enhance your eligibility.
Market Conditions
The overall market conditions and investor sentiment play a significant role in determining the timing and success of an IPO in Australia. Assess the current state of the market, including trends in your industry sector. Favourable market conditions, investor appetite for IPOs, and a positive economic outlook can increase the likelihood of a successful IPO.
How can BoardRoom help?
Going through the process of having your organisation become publicly listed will be long and daunting. Given the number of elements that can affect the process, consider seeing expert help from BoardRoom.
With decades of experience, we offer a comprehensive suite of pre-IPO services to assist you in your IPO journey. Our pre-IPO services include covering prospectus preparation and distribution, information memorandums, holding statements, application processing, financial transaction management and facilitating communication with brokers, lawyers, and accountants. Our Corporate Secretarial services can also support your transition by helping you set up a robust corporate governance structure or by managing secretarial duties, ensuring your policies and procedures comply with ASIC and ASX requirements.
Contact us today to learn more about our pre-IPO services.
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