By Pat Voll
Many, many companies are making big moves. And they’re keeping our finance consulting firm busy—we’ve recently helped a number of clients as they’ve headed toward the IPO market: foreign companies wanting to list on the U.S. exchanges, as well as domestic companies looking to capture higher valuations on their own or getting courted by a SPAC.
Besides the level of activity keeping firms like ours, investors and analysts busy, it’s adding to the workloads and stress levels of corporate accounting departments too. Particularly for SPAC deals (involving special purpose acquisition companies), which move incredibly quickly, finance teams often get surprised by the nature and timing of these events, and they end up scrambling. That can put the transaction at risk, and exhaust everyone involved.
Here’s some quick advice to anyone, whether you’re heading a finance team or a key part of it, on assessing and preparing your organization for the potential changes ahead.
Exit Strategy Trends: Busy, Busy, Busy
In recent months, going public or merging with a SPAC have been popular exit strategies. So far this year, about 300 SPACs have raised over $97 billion in initial public offerings. That’s $10 billion more than 2020, which had set a SPAC/public offering activity record. While traditional IPOs are getting outnumbered by SPAC deals, they are seeing high valuations, especially in tech. Data warehouse company Snowflake, for example, scored the largest IPO for a software company by raising nearly $3.4 billion in the fall. Adding to the flurry of activity is foreign interest, as companies from Japan, China, Germany and other countries have brought their stock to the U.S. recently.
Be Prepared: Practical Steps to Take Before an Exit Event
Always be ready. It’s common for a management team or board to work toward an exit strategy but hold their cards close to the vest until an actual transaction is on the table. In some cases, an interested party reaches out and makes an inquiry when the company wasn’t even thinking of an exit. Both of these scenarios would stress out any accounting organization—once you become aware a change is coming, you enter a race against time. Nobody wants to be the reason your company missed its window or its valuation took a hit. You can take some incremental steps now that will save you heartache later—and increase your odds of a successful exit.
Get informed. Start with making an honest assessment of where you are today, and where you need to be as a public company. To understand where you need to be as a public company, stock up on information about the requirements involved. Being a public company involves a lot more than just filing quarterly SEC reports (although that’s a big one).
For one thing, do you have fully GAAP-based financial records, or are you recording your entries on some other basis? For example, have you implemented ASC 606 (Revenue) and ASC 842 (Leases), or have you put those accounting rules off? Are you recording stock-based compensation? Do you have clean quarterly cut-offs?
Has your company had a financial statement audit yet? Were you able to provide all the information your auditors requested on a timely basis, or did this process drag on month after month? What about audit adjustments—were there many? Were they significant? Did your auditors provide any recommendations for improvement?
Build a roadmap to address your gaps. Once you have an idea of the gaps you need to address, prioritize them and build a roadmap to address each one. What would it take to bridge each finance and accounting gap—is it a skill or a problem that you can address by outsourcing, or is it something that you’d want in-house? How challenging is it to find that level of talent in today’s market, and what is the current market rate for that talent? Build out your plan with a realistic understanding of the timeline and the costs involved—tackle what you can afford to take on. If you get surprised by a potential transaction, you will already have your plan in place for long-term success, although you will need to make some adjustments to accommodate the accelerated timeline.
You may not have any idea what skills you’ll need and how or when to bring them in. Let’s say you’re the controller but you have not held this role at a public company. Understandably, it’s challenging to figure out these answers, especially if no one around you has much or any public company experience either. We sometimes see clients who think they’re ready for a particular aspect of public-company life, but the level of documentation and rigor around how they are approaching things won’t cut it.
Corporate Exits: How Do You Know If You’re on the Right Path?
You may be wondering, what is a readiness assessment? You can start one on your own, but it’s hard to do an objective, thorough exit readiness assessment—ideally you can ask a third party to help you assess the lay of the land. It’s best to have a clear picture of the work that needs to be done rather than to find out late in the process. Start with your audit team—get their input on how ready you are to be a public company. They see the end result of your financial statements and how you and your team respond to their audit inquiries. They might not see the heroic effort this takes, and you have to assess that part—is meeting the financial reporting requirements and auditing expectations something you can sustain on a quarterly basis with your existing team? What happens when you layer in the new requirements of being a public company, such as SEC reporting and SOX? You can also bring in an advisory firm, such as RoseRyan, to take a look and help you with the assessment.
We have put together some resources to help you as well—you can read our playbook for a successful exit and read some client case studies on how they leveraged our support.
Smart companies are prepared for the unexpected. By starting early, identifying your roadmap and making steady progress toward your goal, you put yourself in the driver’s seat. We are happy to help navigate your journey with you.
Pat Voll is a vice president at RoseRyan, where she provides strategic guidance into several practice areas, including corporate governance, strategic projects and operational accounting. She also manages multiple client relationships, develops new solutions for the firm and oversees strategic and corporate culture programs. Pat previously held senior finance level positions at public companies and worked as an auditor with a Big 4 firm.