IPO Journey: first steps to go public
The decision to go public is exciting for any business, but preparing for the process requires careful planning. As you move forward, here are some important steps to consider for your compensation programs.
Establish your compensation philosophy
Equity compensation is significantly affected when a company goes public, so careful preparation in this area is key to a successful transition. Ideally, compensation and rewards professionals would begin their strategic planning up to 18 months before the expected IPO date, but they rarely have the luxury of such a delay.
No matter when you are starting out, however, having a clearly defined equity compensation philosophy is essential to meet the needs of your business and your employees. Broadly speaking, a compensation philosophy is a detailed articulation of values and goals that will determine your business decisions about payment and rewards. This philosophy is typically built around the contribution of business teams which include key executives and board members.
Typically, this is a working document that expresses how your employees will be paid, defines severance agreements, describes stock purchase plans, etc. It characterizes the skills, behaviors and experience expected of incumbents, takes into account the labor market in the field and establishes practices for granting hiring subsidies. It also defines the type and nature of executive and director compensation, including short and long term incentives. The goal is to ensure that your compensation levels are responsible yet competitive based on data and analysis from a group of comparable companies.
Once you have a philosophy document in place, the work doesn’t stop there. As your business goals and the environment in which you operate evolve, your business may be forced to follow suit. It can be an anxiety-inducing activity. As you develop the strategy, have your available group of consultants and subject matter experts examine the plan documents, administration issues, employee services, processes and procedures in detail.
But also keep agility in view. The administration of a stock compensation program in a public company is much more complex than in a private company. Prepare to make changes as the needs of employers and employees will change dramatically before, during and after the IPO process. It is normal for the course, for example, to have to adjust to increased regulatory compliance and oversight, new types of plans, higher transaction volumes, and special requirements in the first six months of trading. negotiation. With this in mind, it makes sense for pre-IPO companies to ensure their success by selecting a trusted provider who is experienced in managing restricted securities and who meets the needs of established public companies.
IPO, SPAC or direct registration?
When a business goes public, a lot depends on the method. While IPOs have long been the traditional route, many companies are now using other means. An increasingly common route is to go through a Special Purpose Acquisition Company, or PSPC. As John Coates, former acting director of the Securities and Exchange Commission (SEC) explainsPSPCs are generally formed by high profile investors or hedge fund operators. They create a shell company, an IPO and a trust account, then source and merge with a private company that hopes to reach a larger pool of investors. They have to complete the merger within a specified time frame and when the deal is done, PSPC transforms into a new publicly traded entity.
Another approach to going public is direct listing. As the Gibson Dunn law firm explainsCompanies that choose this method typically offer their existing shares directly to the public.
The track will have an impact in two ways. First, IPOs and SPACs require institutions to purchase securities in order to mitigate financial risk, and underwriting costs can be substantial. In contrast, companies that choose direct listing do not need underwriters and can avoid the associated expenses.
The second path is the lock-in process, the defined period during which underwriters prevent employees from selling or redeeming their shares to avoid flooding the market after their company goes public. Usually, IPO blocks last up to 180 days. But if your business starts trading after merging with a PSPC, it may have non-traditional lock-up provisions that allow it to scale faster than an IPO. And direct ads don’t require a blocking period.
Underwriters are even shortening the blocking period of some IPOs if they believe that too few investors are likely to put their shares on the market. Thus, regardless of the sector, companies can no longer count on the lock-up as a grace period for developing stock-based compensation systems and personnel. Administration and employee services may need to be ready from day one of trading.
Going public is a complex business, so you need every weapon in your arsenal to be successful.
Equity professionals will find a useful roadmap for strategizing and planning IPOs in IPO: To, through and beyond, A Roadmap for Equity Professionals, a new thought leadership piece from Fidelity.
“IPO Journey: first steps to go publicIs reprinted from the NASDAQ IPO Playbook, October 2021, as part of a paid advertisement from Fidelity Stock Plan Services, LLC. The statements and opinions expressed in this article are based on information provided by Fidelity but modified by the author, Rosa Harris, Media Analytics Group. Fidelity Stock Plan Services, LLC cannot guarantee the accuracy or completeness of any such changes.
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