Navigating the IPO: The Sr. Director of Corporate Development’s Perspective
Jun 15, 2016 | By Chris Sluty
For many growing organizations, the Initial Public Offering (IPO) is a beacon of success. Your company has ramped up sales, built strategic relationships, sustained growth and is ready for the big show. With a fresh infusion of cash, it’s time to take the business to the next level.
Going public is a notoriously long and complicated process. It’s also one of the most rewarding experiences in accounting from both a professional and financial perspective (get those stock options!).
Everybody knows the end game is to ring the bell, but what exactly goes into going public? If you have never gone through the process or are interested in gaining some additional insight, you’re in the right place! This post is part of an interview series with various members of Finance and Accounting departments discussing every angle of the IPO process: selecting bankers, drafting the S-1, preparing taxes, FP&A, optimizing month-end close, quarterly reporting, growing a team and getting SOX compliant. We hope you can learn from their experiences in going public – we know we did.
We interviewed Chirag Shah, Sr. Director of Corporate Development at Cornerstone OnDemand during the company's IPO process, to get his perspective:
Q: What was your role and how did it evolve throughout the IPO process?
A: I came from an investment banking background and my job was to help our CEO and CFO navigate the IPO process. I joined about 18 months pre-IPO and my main focus was on communicating with the bankers and helping solidify the FP&A department. Most companies actually don’t hire a role like this and the CEO and CFO end up spending a huge amount of time communicating with multiple bankers throughout the process. I essentially handled communications and the administrative side and acted as a filter for our CEO and CFO so they only had to spend time on the important items. This allowed them to continue spending time on strategy and grow the business throughout the IPO process. Once we selected our bankers and went public the role became more investor relations and I was also able to focus on other business development areas like identifying potential acquisitions for us.
Q: What is the bank selection process like? What role do they play in the IPO?
A: When selecting your banks you have something called a ‘bakeoff’, which usually happens 6-9 months before you want to go public. During the bakeoff you are looking to find a good fit for a lead underwriter and co-managers. Several banks come in to learn more about your business and pitch their services. The lead underwriter is usually one or two larger banks and co-managers are smaller banks with strategic relationships. The lead underwriter(s) help find institutional investors to participate in the offering. Top banks can be very selective as the success of your company will reflect directly on the bank. Bank selection can also be relationship driven and oftentimes VC’s and investors have preferred underwriting partners.
Q: What are the banks responsible for?
A: The banking arm will cater to your company’s needs during the IPO to ensure you are complying with all regulations. The research analysts in the bank learn about your business in great detail and will pitch your company to institutional investors. Research analysts will interview members of management to discuss their area of the business, investigate customers to understand revenue mix and dig into the financials to prepare forecasts. This information will be turned into the ‘initiated coverage report.’ A few months before the IPO your book writers and co-managers will set up ‘Non-Deal Roadshows’ (NDR’s), which link the CEO & CFO to institutional investors to gauge interest. Investors get to know the story and vision from management and get a 3rd party perspective from the initiated coverage report to decide if they want to invest in the IPO.
Q: Is going through the IPO process a dramatic change for the organization?
A: It really depends on the department. The finance function will change dramatically due to all the regulations, but most other departments will continue to operate the same post-IPO.
Q: What is the goal of the finance department?
A: Depends on who you ask! From my perspective FP&A is one area that needs to continually improve once you’ve gone public. One of the main goals of a public company is to keep the stock price high and you do this by hitting targets. Targets are a fine line – they need to be aggressive enough to excite investors but conservative enough for the business to achieve. An accurate forecast is the only way to properly project numbers and continuously improving this area will help the stock price. Other than that, file the 10-Q’s and 10-K’s on time and make sure we’re compliant with all SEC regulations.
Q: Do the accounting and FP&A teams perform separate functions during the IPO process?
A: FP&A and accounting should not be seen as separate functions. You need clean data in accounting in order for forecasting to be precise. The accounting function will be required to be flexible with ad-hoc requests. Research analysts will have one-off requests for the accounting department, so it is important for the accountants to understand why this data is necessary and how it fits into the whole IPO process. The accounting function’s most important role is to never postpone earnings. Accounting can negatively affect your post- IPO valuation much more than the initial valuation.
Read the rest of the interview series: