Eisner PEQ: Preparing for an IPO

While the market for initial public offerings (IPOs) is essentially on hold, many of the companies that went private during the booming buyout period that began a few years ago will begin preparing to get themselves in shape for a public offering at sometime in the future. Here’s a look at what they will need to consider. PEQ sat down with some private equity experts to talk about what is needed in the run-up to taking a private firm public, including Charles Weinstein, managing partner of Eisner LLP; Robert McCooey, senior vice president, Capital Markets Group, NASDAQ; and Drew Lipscher, a partner at Greycroft Partners.

PEQ: When you were working with companies that are planning on going public, explain the process. When do you start to approach them in terms of being a listee? What services are most important to them? And are the CEOs, in your opinion, generally ready to lead public companies, or do some of them need to be replaced by a more seasoned executive?

McCooey: It certainly goes the whole spectrum. We approach companies early on, and there are a number of things we do. For example, in my capital markets group we are out talking to the different private equity and venture capital firms and we’ll talk to them about their portfolio and try to find out about where they are in the process, which companies are five years out, three years out, 18 months out, and get their blessing to begin to work with them and introduce us to them so that we can talk about the suite and proxy services that we have here at NASDAQ because the capital markets have changed very dramatically over the past half a dozen years and what we’ve recognized is that as granular as the market share trading between us and out major competitor has changed.

We begin to talk about those with a private company 18 to 36 months before, so that they can avail themselves of the tools we have available as they become public, as they need them and walk them through that process. We’re much more consultative, we’re another advisor to them and we end up, to a certain extent, being a one stop shop. And we work with all their advisors too, their owners, being the private equity, venture capital firms, we work with the accountants, the lawyers, and I spend a lot of my time in an education process as to the way that things have changed within the capital markets today versus just a few years ago.

PEQ: Charlie, your firm is actually the instument bringing new compliance and regulation to the attention of your clients as they move from the private arena to the public markets. What are some of the things you see that companies need to do as they consider a move to go public?

Weinstein: We have been working with companies that have gone the route of going public for many, many years, and we’ve seen a lot of tendencies inside the management teams, companies going through the IPO process, and it’s been just the last number of years that the IPO process has been dominated by private equity funded companies, at least from our firm’s experience.

Oviously the IPO market, unfortunately, is absolutely closed for the moment, but it will open back up. But what we’ve seen prior to this recent phenomenon, there were a number of smaller IPOs. You had $10 million IPOs, $15 million, $20 and $25 million IPOs and the management teams of those companies tended to be very inexperienced, tended not to have a lot of guidance from a board of directors. Most of them didn’t form a board of directors until just before they were going public, so in some ways they looked to their professionals, their lawyers, their accountants for guidance in the IPO process as they grew from entrepreneurs to business managers, as they accepted the capital and the responsibilities of going public.

When that trend changed to private equity funded companies using the IPO as an exit strategy, the entrepreneurial management team of these smaller companies had the benefit of a very experienced board. I think everyone has mentioned that private equity, when they invest in these companies, they generally add a tremendous amount of focus and targeted board expertise. And the management teams tend to be different in that they get guidance, in terms of running the business, they get guidance from their board of directors if they’re private equity funded.