P's and Q's of IPOs and M&A

By: Mike Buher, Director of Assurance & Advisory

Mike Buher

Director of Assurance & Advisory

P’s and Q’s of IPOs and M&A

Rapid growth leads to exciting opportunities. Leaders looking for the next step in their company’s life cycle often turn to the public markets (IPO) or a merger/acquisition (M&A). Yet, the biggest challenges to a successful transaction are often internal, since internal resources typically haven’t kept up with meteoric growth. That’s why having your house in order is crucial to making the Next Big Thing a truly special event, and why you should mind your P’s…and a Q.

Plan – You actually need two plans. First, you don’t want to go into a transaction without knowing the ropes. Good advisors, lawyers, CPAs, and bankers can help craft a course of action that makes sense for your business, its seasonality, and expected market conditions. Second, you need to articulate a solid plan for your company after the Next Big Thing.

– What will things look like post-IPO or post-acquisition? Do you have a strategy to deploy your new capital and grow the company, or are you just paying off debt and taking a long-deferred bonus?

– How quickly can you transition to being a public company or assimilating a new business?

That plan, of course, leads to the next P, which is….
Profits – Ultimately, every plan must lead to cash flow. While investors will have some patience, very quickly you must demonstrate strong and sustainable earnings that fund further growth. While investors may like your business, in the end what matters to them is return on investment (ROI), and the only way to provide ROI is C-A-S-H. But, profitable companies all seem to have good…

Processes – Frankly, processes can be mundane and lack much of the excitement that the other areas provide. Yet without solid, consistent processes you are inviting failures that could delay or derail your plans. Internal controls, accounting and administrative processes, and documented policies may seem like niceties that can wait until things settle down. However, the old adage of “pay me now or pay me later” could become “pay it now or pay a whole lot more later.” Better to shore up the internal controls now than repair the damage later. However, the most important of all the Ps and Qs is….

People – People matter more than all of the other factors combined. Many profitable companies have great plans and processes, but are stuck in neutral because of their culture. In the quest to reach the next milestone, too many executives forget to bring their people along for the ride. When this happens, even the most loyal employees begin seeking other opportunities where they feel appreciated and valued despite promises of big paydays from their current situation. Including your trusted and key professionals in the journey from start to finish is often the key to empowering, encouraging, and retaining them. Besides, who needs the distraction of conducting a job search for a key position in the middle of a transaction? Of course, there is no getting around the need for…

Quality – In an age of instant information and feedback, the market has little tolerance for a lack of quality. Customers demand impeccable quality in the products and services they buy from you, and the capital markets demand quality earnings on a consistent basis. Letting either one slip means that failure is just a matter of time. What customers seek from your product, investors seek in ROI. They are asking questions such as:

– Are your earnings sustainable, or are they built on factors that will only last through the next quarter?

– Is your company a long-shot speculative investment, or are you a focused bet with a strong story to tell?

Builders of dynamic, growth-oriented companies are typically great leaders with tremendous vision. That vision is evident when the building process has led them to the threshold of the Next Big Thing, but often that vision comes with blind spots. At this point, reaching out to trusted advisors and mentors is the wisest and most visionary thing a good leader can do. Those who have gone before and know how to craft a profitable plan with solid people and processes will help you with sustainable quality for years to come.

More From Mike

More in Assurance & Advisory