Preparing for an IPO: Build a solid plan and avoid surprises. The Dbriefs Private Companies series

Webcast title in Verdana Regular Preparing for an IPO: Build a solid plan and avoid surprises The Dbriefs Private Companies series Bernie De Jager, Partner Audit & Assurance Ryan Tolley, Senior Manager Audit & Assurance July 27, 2017

Agenda Current market environment Emerging growth companies under the JOBS Act Preparing for an IPO Build a solid plan and avoid surprises Copyright 2017 Deloitte Development LLC. All rights reserved. 2

Understanding of IPO market Overall market performance and volatility contribute to overall IPO sentiment. Additional factors that drive overall supply and demand for IPOs are as follows: Supply Capital Needs Insider Monetization M&A Currency Demand Sector Momentum Risk Appetite IPO Performance Copyright 2017 Deloitte Development LLC. All rights reserved. 3

Historical IPOs 2003 Q2 2017 US IPOs 75 225 200 235 218 38 56 150 119 129 215 291 171 112 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 23 49 2017 Q2 Source: NASDAQ, Yahoo! Finance Copyright 2017 Deloitte Development LLC. All rights reserved. 4

Poll question #1 Which industry do you feel will issue the highest number of IPOs this year? Consumer & Industrial Products Energy & Resources Financial Services Health Sciences Technology, Media and Telecom Other Copyright 2017 Deloitte Development LLC. All rights reserved. 5

2017 IPO landscape Sector 2017 vs 2016 # IPOs % above/within Offer/30 day Technology 1 9 18 100% 21% Diversified 7 8 75% 6% Healthcare 8 6 27 100% 27% Energy 7 5 40% 0% Financials 2 4 8 50% 17% Real Estate 2 4 6 75% 14% Consumer 3 6 67% 15% 2016YTD 2016 2017YTD Copyright 2017 Deloitte Development LLC. All rights reserved. 6

Investor focus areas Market Leadership M&A Potential Growth Go-to-Market Strategy Investor Focus Areas Management Team Scale Competitive Advantage Path to Profitability Copyright 2017 Deloitte Development LLC. All rights reserved. 7

Poll question #2 Do you think IPO activity will pick up in the next 12 months from where it was in Q2? Yes, it will increase substantially Yes, it will increase modestly No, there will be no change No, it will decrease Don t know/not sure Copyright 2017 Deloitte Development LLC. All rights reserved. 8

Jumpstart our business startups (JOBS) act Became law in April 2012 with the purpose to make the process easier and reduce the cost and time for Emerging Growth Companies (EGCs) to complete IPOs Basic requirements for EGC status: Total gross revenues cannot exceed $1 billion in most recently completed fiscal year EGC status can be held for up to five years after IPO if: Gross revenues less than $1 billion Market Cap less than $700 million Issue no more than $1 billion nonconvertible debt in 3-year period JOBS Act Frequently Asked Questions resource Copyright 2017 Deloitte Development LLC. All rights reserved. 9

Key benefits of JOBS act for EGCs Initial Registration Statement and subsequent amendments filed on a confidential basis with the SEC until the 15th calendar day before road show begins Only two years of audited financial statements are required in an initial public offering (IPO) Periods required for selected financial data in both registration statements and periodic filings do not extend to periods before the first year presented in the EGCs IPO. Ability to elect to delay adoption of new accounting standards until they become effective for private companies (i.e., non-issuers) Reduced executive compensation disclosures Exempt from SOX 404(b) requirements (auditor attestation), if EGC requirements are met (up to five years) Can engage in both oral and written testing the waters communications with certain potential IPO investors (only qualified institutional buyers or institutional accredited investors ), either prior to or following the date it files its registration statement for its IPO, to determine whether such investors might have an interest in participating in the IPO Copyright 2017 Deloitte Development LLC. All rights reserved. 10

Poll question #3 Which of the following best describes your implementation efforts to adopt the new revenue standard? Completed Implementation on-going Initial assessment started Have not started Copyright 2017 Deloitte Development LLC. All rights reserved. 11

The road to IPO Going public can be a long, challenging, and complex process that imposes significant burdens on a company Benefits Improved perception of business and financial position Increased visibility Better ability to attract talent Liquidity for investors and employees Access to public markets Costs Distraction from core business Loss of confidentiality and increased financial transparency Reduced flexibility Significant increase in governance costs Pressure to grow and hit numbers Greater potential for legal liabilities Heightened disclosures Challenges Public private disconnect on valuation Market timing Formalization of key business processes Preparation of required financial information Business combinations (i.e. required S-X 3-05 historical financial statements for acquired business) Internal controls Forecasting and budgeting Copyright 2017 Deloitte Development LLC. All rights reserved. 12

To complete a successful IPO assemble a strong team Mgmt. Group Accounting & Finance Tax Treasury Business Unit Mgmt. Internal Audit Attorneys Financial Printers Professional Advisors Executive Management Investor Relations Management group Maintains control of the process Dedication of Senior management, especially the CFO Focus on Accounting and Finance Team Works closely with its independent accountants and counsel Assemble a strong team Chief Financial Officer Controller FP&A Director Human Resource Director Tax Director Copyright 2017 Deloitte Development LLC. All rights reserved. 13

Accounting and finance matters Reporting Requirements Audited financial statements Audited financial statements for significant business acquisitions S_X 3-05 Financials can be a challenge during an IPO New accounting standards (e.g., new revenue standards, new lease standard, etc.) Effective and Timely Close Evaluate timing of close activities and develop structured close process Prepare quarterly financial statements as if already public Remediate control deficiencies and system limitations Tax Capital and legal structure International tax structuring IP location presence there In-house director vs. outsourcing Restructuring activities necessary to complete IPO Effective tax rate comparable to peers Ongoing reporting requirements Copyright 2017 Deloitte Development LLC. All rights reserved. 14

Assess current and future state and develop a detailed work plan for each area Controls Internal control, design, implementation and Testing Management certifications (i.e. 302, 906 and 404a) Disclosure controls and procedures process and committee Technology Eliminate use of spreadsheets and automate and scale key processes Evaluate system and procedures of ICFR Evaluate speed to close Business Processes Evaluate core vs. non core areas to be outsourced to service providers Evaluate business process scalability (i.e., IP risk, customer concentration/diversification, vendor and distributor relationship, etc.) Corporate Governance Formalize board and committees and establish regular touchpoints with executives Executive compensation plans and required disclosures Related party arrangements and effects on IPO Copyright 2017 Deloitte Development LLC. All rights reserved. 15

Poll question #4 When preparing for an IPO, how much time is needed prior to potential IPO to put in place the structural and operational changes needed for the public markets? Three months Six months One year 18 months Copyright 2017 Deloitte Development LLC. All rights reserved. 16

IPO readiness roadmap Filing of Form S-1 Form S-1 Effective Date Pre-Filing Period Waiting Period Post-Effective Period 6 to 12 months 3 to 6 months Ongoing Evaluate Assess Execute Sustain Fin Rep & SEC Reg. Corporate Governance Systems, Process and Controls Tax Talent and Comp Programs Investor Relations Transaction alternatives Tax strategy and structure assistance Business plan development Exchange and underwriter selection Pre-IPO workshops Hire key members of management team Discussions with investment bankers, legal counsel, external auditors and professional advisors IPO readiness assessments GAP analyses Activity identification and prioritization GAP remediation and interdependency identification IPO roadmap development Project planning Board charters and policies S-1 preparation Accounting policy development Disclosure drafting Finance process improvement SOX readiness Board preparedness Internal audit transformation Tax operating model and outsourcing Investor relations On-call accounting support Investor relation and market value services Accelerated external reporting Sufficiency of resources monitoring Implementation of new accounting standards Tax compliance and provision services Copyright 2017 Deloitte Development LLC. All rights reserved. 17

SEC comments around IPOs Share-Based Compensations Cheap Stock Non-GAAP Measures Draft Audit Reports Predecessor Financial Statements Distribution to Owners/Change in Capitalization Dilution Common SEC Comments Topics Revenue Recognition Segment Reporting Executive Compensation Pro Forma Information Complex Equity Instruments Age of Financial Statements Source: SEC Comment Letters Including Industry Insight What Edgar Told Us (Ninth edition) Copyright 2017 Deloitte Development LLC. All rights reserved. 18

Join us August 29 at 2 p.m. ET as our Private Companies series presents: Older, more diverse, better educated: Meet the future US labor force Copyright 2017 Deloitte Development LLC. All rights reserved. 20

Contact information Ryan Tolley Senior Manager Audit and Assurance rtolley@deloitte.com Bernie De Jager Partner Audit and Assurance bdejager@deloitte.com Connect with me on LinkedIn Copyright 2017 Deloitte Development LLC. All rights reserved. 22

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. Copyright 2017 Deloitte Development LLC. All rights reserved. 23

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