Executing a successful IPO in a volatile market.

• Author: Gould, Mike
• Position: PRIVATE COMPANIES - Initial public offerings

Recent stock market gyrations have made clear that the window for initial public offerings can open and close quickly. But despite lingering uncertainty regarding the economic outlook, short-term market events typically should not impact the process companies undertake to prepare for an IPO. Companies that successfully execute an IPO in the coming months will have taken a long-term approach and undergone careful planning, thereby preparing them to navigate unforeseen market events.

Potential issuers often underestimate the time and effort that goes into embarking on life as a public entity. No one can predict when the window will open or shut. But companies that are well-prepared will have the flexibility to take advantage of market conditions and be able to access the IPO market when the timing is right.

So what is a company to do?

Market Volatility is Nothing New. Though recent high volatility causes heartburn for issuers and investors, the market has experienced similar levels of volatility over the past decade, including the spike caused by the credit crisis in October 2008. The adage of history repeating itself seems apt, and is a reason to not panic.

Fundamentals--the IPO Building Blocks. Investors consider IPO issuers to be relatively high risk due to the lack of trading history; increased market volatility compounds that risk. It can be a major factor contributing to an investor deciding to not invest in the IPO.

In turn, investors have demanded more information from companies pursuing IPOs, creating pressure for companies to develop their business models and focus on fundamentals.

Investors will often look to key metrics, including revenue growth, profitability or a clear path to profitability, relatively predictable earnings growth, a large addressable market, barriers to entry, protectable innovation and an experienced management team.

Companies with good fundamentals and sound oversight are more likely to execute a successful IPO in a difficult capital-raising environment.

Be Ready. An IPO is a transformational event, perhaps the most important a company can undertake. It can change the lives and fortunes of its owners, investors and employees. Without smart planning and preparation, an IPO can be problematic from the start.

One way to ensure a successful IPO is to establish two equally important parallel work streams at the start of the registration process, preceded by a thorough IPO readiness assessment. The two work streams...