Pre IPO Planning

IPO not a one-time transaction but rather a long transformation process (at least 2-3 years) lead time before IPO Clear articulate objective Carefully deployed corporate strategies and financial plan

Steps

Diagnostic review - company awareness of pro and cons of IPO Alternative available Company structure and operations

Restructuring and Reorganization

- to meet requirement of listings - strengthen financial reporting structure - acquire management talent to max business value - strengthen financial position - Internal policies to meet regulators requirement

Shortlisting of professional advisors

Issue managers and underwriters - underwriter invite other investment bankers to participate in joint distribution of the offering (syndicate) - member of syndicate make firm commitment to distribute certain percentage of entire offering and held finanically responsible for unsold shares

Solicitors - responsible for establishing duediligence on contracts, employment, management etc. to minimize potential liability of directors as to risk and sustainability

Reporting accountants - prepares reports containing company current finances and financial history for inclusion in prospectus and other public documents Other professional advisors

Preparation for prospectus and board memorandum - latest details and information in prospectus - profiling the business - successfully communicate stories and growth prospect to investors - seek board of directors approval for launching

IPO launch

- after meeting all listing and regulations requirement by SC

Pro and Cons of IPO

Advantages: Potential capital growth -raise additional funds to finance activities - without periodic interest payments

Institutional investment

-easily attract institutional investors without negotiation - wider investors base

Enhanced corporate profile and improved valuation

- listing adds value to firm - increase business opportunities - amplifies brand and product awareness - increases liquidity and valuation of firm

Employees shareholding scheme

- opportunity to implement ESOS - boost employee morale, retain staff and attract potential employees - increase value of company

Profitable exit strategy

- exit strategy for key owners - work towards increase share price and exit

Disadvantages

Loss of control and exposed to takeovers -have to share ownership with other investors - CEO answerable to board - appoint independent directors ensure check and balances - can take control of company by others

Higher reporting requirement

- additional obligations and requirements - need to meet acceptable standard of corporate governance - prepare comprehensive audited financial statements - publish annual reports - increase costs

Accountability of public shareholders

- have to consider interest of other shareholders - interest difference from objective

Loss of privacy

- media interest and full disclosure requirement regarding its operations and plans - compensation to directors, stock option plans, details of significant contracts - reveal timely information on sensitive issues on-going and time basis to prevent insider trading

High Cost of Listing

- high cost of planning and launching IPO - tedious and require many parties issue managers, underwriters, solicitors, accountants etc - example RM2 million to raise RM10 million in ACE market

Other success factors

Timing Profits Reputation Expectations

What to look out for in a prospectus

Key owners track records and quality of management Family owned or diffuse ownership Existence of business

Management team qualifications Corporate finance experiences: M&A, Share Buybacks, Proposals CEO operational efficiency experience and relevant in core business activities

Board of Directors Independent directors adequate financial training and related work experiences

Types of share offerings 2 types - offer for sale and public issue Offer for sale = sales proceeds go directly to vendor Public issue = go to company If majority is offer for sale : caution = exit for key owners

Explain how to use the proceeds - to fund working capital - reduce bank borrowing - future expansion

Future prospect stated - provide for some discount - expansion plans realisitic and reasonable - size and capacity of the company - owners too ambitious?

Understand company background, production capacity, type of products, locations of factories, key major supplier, customers and competitiors

Sustainable competitive advantages such as possession of any intellectual properties, technology, patents, trademarks, licenses, strong and recognisable brands

Dominance - in particular geographical region, niche market, wide distribution network, strong marketing team, and R&D capability

Risk factors associate with investing - specific risk eg dependence on few customers and suppliers, expiration of patents and special arrangement with major shareholders, supplier and customers

Offer price - expensive? Valuations - if above overall market average valuation, might be sell down after IPO - use PE ratio and Price-Book ratio to determine value of company

Dividend payout policy - it is stated - compute potential dividend yields from companys dividend payments.