Considerations for Business Owners and Executives Taking Their Company Public

Transcription

1 Considerations for Business Owners and Executives Taking Their Company Public

2 Today s Speakers 2

3 David A. Ethridge US IPO Services Leader, PwC David is a Capital Markets managing director at PwC with 25 years of experience built around the equity capital markets, advising clients globally on their plans to access the US equity markets via IPOs, FOs, Convertibles, PIPEs and RDs. During his career, he has advised and executed well over 100 IPOs, including helping Alibaba execute the largest IPO in history at $25Bn when he was leading the NYSE Capital Markets team. David is the US IPO Services leader, where he helps PwC clients prepare for accessing the equity capital markets through an IPO. Preparing for life as a public company requires a thorough assessment of a company s capabilities, strong project management skills and a knowledge of the pitfalls many issuers face while working through the IPO stages of planning, process and pricing. 3

4 Meredith Strong Deals Director, PwC Meredith Strong is a director in PwC s Transaction Services practice in Silicon Valley, providing capital markets and accounting advisory services to clients, with specialization in the technology sector. Meredith advises clients in connection with various forms of capital markets transactions, including initial public offerings, divestitures, carve-outs and M&A transactions, as well as with continuing registration statements with the SEC. Meredith has helped her clients through many complex accounting and financial reporting matters in anticipation of capital markets transactions and with evaluations of systems and processes required to become a publicly traded company in the United States. Meredith has deep technical accounting and financial reporting knowledge, including the SEC registration process, pro forma financial statements, carve-out accounting, earnings per share computations, stock-based compensation and accounting for business combinations. 4

5 Joshua Ford Bonnie Partner, Simpson Thacher & Bartlett LLP Josh Bonnie is a partner in the New York and Washington, D.C. offices of the law firm Simpson Thacher & Bartlett LLP. Josh is one of the preeminent IPO lawyers in the nation and regularly counsels public companies on spin-offs and other significant strategic transactions, capital markets offerings and general corporate and securities law matters. Josh has advised many companies on their IPOs, including Invitation Homes, Hilton Worldwide, The Carlyle Group, Blackstone, MasterCard and Accenture. Josh has extensive experience with complex IPOs, including those employing UP-C and other multiple-tier umbrella partnership structures. Josh has been featured in The American Lawyer s Dealmakers of the Year, is recognized in Chambers Global: The World s Leading Lawyers for Business, Chambers USA: America s Leading Lawyers for Business and The Legal 500 United States as one of the leading capital markets practitioners in the United States, and is endorsed by PLC Which Lawyer? 5

6 Kevin Kennedy Partner, Simpson Thacher & Bartlett LLP Kevin P. Kennedy is a partner in the Palo Alto office of Simpson Thacher & Bartlett LLP, specializing in securities and corporate governance matters. With more than 25 years of experience in the Silicon Valley, Kevin is a leading practitioner in the area of initial public offerings and has worked on some of the largest and most complex securities offerings ever done in the Valley. Highlights of his experience include representing the underwriters in Tesla Motors IPO and on all nine subsequent public offerings, which have raised more than $8 billion in total proceeds, the IPO of ebay and representing Goldman Sachs in Apple s $17 billion bond offering then the largest corporate debt offering ever. Kevin is one of only nine attorneys in all of California ranked in Chambers highest category for Capital Markets work and was recently named Lawyer of the Week by the Financial Times of London. 6

7 Jeffrey Prince Director, Strategy and Business Development Donnelley Financial Solutions Jeff Prince is Director of Strategy and Business Development at Donnelley Financial Solutions (DFS). In this capacity, he drives cross-functional strategic initiatives across the Global Capital Markets organization and has oversight of the DFS Private Company practice and all strategic partnerships and investments. Before joining DFS, Jeff spent 6 years at Goldman, Sachs & Co. working as an investment banker in the technology, media, and telecommunications group and as an operational risk analyst covering listed derivatives across the global Fixed Income, Currency, and Commodities markets. Jeff graduated with a bachelor s degree from the University of Michigan, Ann Arbor. 7

8 Agenda The IPO market Going public: advantages and disadvantages The IPO timetable: overview and key milestones Planning ahead: preparing to be a public company Hot topic: maintaining control Building a public company finance organization Hot topic: compensation and benefits issues Other resources 8

9 The IPO Market The broader US markets have rallied, closing at record highs 9

10 The IPO Market Optimistic start to 2017 US IPO market 10

11 The IPO Market US IPOs diverse sector activity in

12 The IPO Market IPO themes What s working 12

13 Going public: Advantages and Disadvantages On the one hand.. Enhancing company s access to capital Publicly-traded equity as acquisition currency Enhancing its brand and market profile Equity-based compensation Diversified shareholder base Public company valuation and liquidity for equity holders Then again, on the other hand.. Impact on firm culture Distraction from long-term focus of managing for quarterly earnings Increased formality and process in decision making Public disclosure and scrutiny o Executive compensation/related party transactions; Corporate governance; Competitive information; Financial performance; Changes in manner of doing business Costs and burdens of public company status o Management time and attention; Public company overhead Dilution and possible diminished control of existing equity holders Litigation and liability 13

14 Illustrative IPO Timeline There are many issues and judgments which need to be decided by a company prior to going public. Hire Advisors Financial Statements 2-3 years audited financials 2-5 years selected financials SOX/internal financial controls All Hands Organization meeting Due Diligence Bankers, Research Analysts and Counsel Business Financial Legal Accounting Financial Projections Develop detailed financial projections (5 years) Develop quarterly financial projections SEC Review SEC reviews prospectus, including financial statements Typically 3-4 rounds of comments for an IPO, requiring weeks Update financials Public filing (EGC) Add co-managers File with $ price range Final Valuation/$ Price Range Marketing and Pricing Investor targeting Salesforce presentation and teach-ins Roadshow (1x1s and group events) Bookbuilding Pricing and allocation Closing Pre-Organization Meeting Preparation (Up to Pre-organization two-years) Meeting Preparation Filing Preparation Filling Preparation (10-14 Weeks) 4-6 Weeks SEC Review SEC (10-12 Review Weeks) 8-10 Weeks Marketing & Pricing (2 Weeks) Corporate Structure and Re-Organization Suitability of current corporate organization vs. reorganization Tax structuring and implications Domicile determination Corporate Governance/Board Composition of board Search for independent directors Board committees (audit, nomination and compensation) SOX Potential management changes/additions IPO & Capital Structure Primary/secondary Use of proceeds Optimize capital structure and financing needs Dividend policy Eliminate preferred equity, converts IPO Prospectus Key marketing document; Foundation to equity story Underwriters provide outline/investment highlights Company and its counsel drafts prospectus Executive Compensation Total Weeks Determine compensation packages for executive management and board (including stock/options) Roadshow Presentation Equity story Investment thesis to guide presentation Available online to retail and institutional investors (NetRoadshow) Source: PwC 14

15 Planning Ahead: Preparing to be a public company IPO readiness assessment o Finance and accounting o Public company accounting, close timing o Internal audit and internal controls o Financial modeling and forecasting o Tax o Legal o Investor relations o Compensation and HR o Board composition o Technology Realistic work plan that addresses internal gaps and includes actionable steps to close those gaps 15

16 Planning Ahead: How do investors see your company? Identify the peer set of public companies analysts/investors will compare you to o Positioning your company into the peer set that s right for you What are the key metrics used by analysts/investors to evaluate your peers? o How does your company look when viewed in this way? o Do you have the internal capability to report the expected metrics? 16

17 Planning Ahead: What else should I be thinking about now? Revisit risk with a public company mindset Tax and organizational structure Third party consents Related party transactions Shareholder arrangements Board of Directors 17

18 Hot Topic: Maintaining Control How to maintain control through corporate structuring pre-ipo o Why is this a desirable goal? o Advantages of doing this pre- as opposed to post-ipo Themes from Snap Themes from Google Feedback from proxy advisory services 18

19 Hot Topic: Maintaining Control Use of Low Voting Stock Examples o Google (10 votes, 1 vote, no-vote) o Facebook (10 votes, 1 vote, no-vote (proposed)) o Groupon (150 votes, 1 vote) Why 1/10th vote? o Impact on ability to do tax-free acquisitions using a reverse triangular merger structure Track record of companies using low-voting stock Erosion of voting control over time More Exotic Alternatives Tenure voting o Smucker s Alibaba s structure 19

20 Building a Public Company Finance Organization Questions to ask about your finance organization Will we have the time and capacity to focus on ongoing operations and marketing the IPO? Are there any data gaps in the financial information? Do we have sufficient technical accounting expertise to handle the additional external reporting requirements? Do we have sufficient documentation and policies to support external audits? Does sufficient reporting exist to form the basis for management s discussion and analysis (MD&A) and the business section? Have we identified the accounting implications of any changes to the legal entity structures that may occur prior to the IPO? Is our closing process sufficient to support our organization as a public company? Can we provide the right information at the right time to investors, regulators, and management? Can we accurately forecast and meet budget? 20

21 Hot Topic: Compensation and Benefits Issues How compensation issues can drive companies to go public o Looming expiration of options Upcoming IPO cliff on Facebook-style RSUs o o Major tech companies traditionally used 10 year cliff More recent slide down to five to seven years Other ways to handle o o Employee tenders Pinterest plans How to retain employees who have vested in their pre-ipo RSUs How to facilitate an orderly sale of stock to allow existing employees to pay tax obligations created by RSU vesting Cleaning up loans to executives o Sarbanes-Oxley: must be done before initial filing, not before pricing 21

22 Other Resources 22

23 Other Resources Initial Public Offerings: Considerations for Business Owners and Executives Taking Their Company Public IPO experts Simpson Thacher & Bartlett LLP and PwC bring you an easy-to-read publication answering the most common questions about going public. If you are considering an IPO, learn about the process, timelines, benefits, and drawbacks of becoming a public company without a lot of technical jargon. Download here 23

24 Other Resources Donnelley Financial Solutions Venue Market Spotlight keeps you up to date on market trends. 24

25 Other Resources Learn more about UP-C structures from Simpson Thacher. No other firm has such extensive experience with UP-C and UP-PTP umbrella partnership tax structures and the complex, associated tax receivable (TRA) arrangements. The UP-C Structure 25

26 Other Resources Undertaking an initial public offering can catapult your company to the next level yet windows of opportunity open and close quickly. PwC can help you leverage the right insights to make the right moves at the right times. Learn more 26

27 Thank you 27