, ,

IPO, M&A: Big changes ahead require smart moves at every step

Companies that have made it past the startup stage and are growing like gangbusters have beaten the odds. They’re not only surviving but making it. They’ve branched out their customer base and perhaps their geographic reach. They’ve upped their production, they have a small group of loyal investors, and their earnings are going upward. But for how long? How long can organic growth get the company to where it wants to go?

At some point along many companies’ lifecycle, the growth plan turns into an acceleration plan. They want to expand—and usually fast. Either they know things will slow down without action and it’s time to make a strategic move. Or they need a boost to widen the intense gap between them and their competitors. It’s time for a transaction. A big one.

When a jolt of growth is needed, whether that’s a capital infusion, an acquisition of fresh talent or something entirely new (like intellectual property), thoughts turn to going IPO or making an M&A deal. And that’s when things really speed up. Smart companies on the IPO track take a hard look at themselves, to be sure their own financial house is in order (so key to a proper and favorable transaction). Acquiring companies put on their due-diligence hats and delve into the details of their target business.

The focus in either scenario is usually pretty narrow, with the eye on the final prize—a done deal, a successful transaction, a sigh of relief. But really the work, the drive forward, does not end. For teams that have never gone through such a process before, that narrow view may be all they can handle on their own. They do not have the experience—or the bandwidth—to think about what comes next.

Companies at this stage bring on experts who can get them through the prep and details of the transaction. The smart ones also give consideration to the time after the deal is done. How will the combined companies in the M&A deal mesh? How do they keep the business trucking along while also setting a smart foundation for the new entity?

For IPO-bound companies, the post-transaction time needs to be folded into the planning. Does the company need to bulk up to take on tighter reporting deadlines and increased investor (and possibly, regulator) scrutiny? How can the company ease the culture shock that will certainly hit as the company transforms into a transparent entity that is subject to new regulations? The more planning that can be done up front, the easier the after effects will be.

Just as the needs and resources of their companies evolve as they get bigger, so do the needs and resources of the finance teams and the CFOs who lead them. They self-assess and evaluate to see whether they can keep up with evermore demands and expectations as the company goes big. Where are the skills gaps? Can we stay on top of the changing accounting and regulatory rules with a more complex organization? Will the CFO be able to handle the spotlight post-IPO and rally the troops during the rocky transition? Can the organization handle the many internal demands when integration of a merged company may take awhile?

The questions will vary depending on the transaction at the time and the team on hand. But they are worth asking when a deal is imminent. The earlier, the better when a large transaction is in the near future. When you don’t know the right questions to ask, it’s time to turn to seasoned pros who do.

Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting firm’s cleantech and high tech practices. He can be reached at cvane@roseryan.com or call him at 510.456.3056 x169.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *