How to Smooth the Path to a Successful IPO through Virtual Data Rooms
The global initial public offering (IPO) market has been a double-edged proposition this year.
Activity levels were down 21% at 660 IPOs globally in the first half of the year versus the same period in 2017, although the volume was 5% higher at US$94.3 billion.*
The reduced activity could be attributed to a backdrop of increasing risks, including trade wars and geopolitical tensions. However, economic fundamentals and equity valuations remain strong, meaning an IPO is still a tantalising prospect.
High profile successes and failures so far in 2018 highlight the potential rewards and risks in the current environment. Major successes this year include the US$3.2 billion Axa Equitable IPO, while the failed Aramco IPO demonstrates the high risks and costs involved.
Companies that wish to go public should consider all the factors that can help maximise the chances of success. In an increasingly digitised world, ignoring the benefits of rapid technological progress, would be a costly mistake.
Technology cannot replace humans in relation to strategic thinking and business planning, which are fundamental to any company. But it is an impressive tool when it is correctly integrated into the more process-driven functions of firms, increasing the power to collect, process and distribute information to the right parties with much greater speed and accuracy.
IPOs are stressful
An IPO is one of the most stressful activities that a company can go through and success is often dependent on a business’s ability to handle high volumes of data in a consistent and timely manner. Companies need to demonstrate transparency and control to all stakeholders, including regulators and potential new shareholders.
In practice, Virtual Data Rooms (VDR) are used exactly for that purpose. Virtual data rooms connect authorised users, including those inside a company and their external stakeholders, digitally and in a secure environment with real-time access to all relevant documentation.
A VDR ensures documents are always available to authorised parties in a secure environment and helps ensure that they are up-to-date. All data is stored online on a cloud platform and is always accessible to both internal and external parties, depending on their individual permission levels.
Creating a database in which documents can be updated consistently gives asset owners full control and the ability to react to the latest market conditions, bringing a company to market quickly when the conditions are right.
Companies should consider the benefits that a VDR will provide after a successful IPO. It is highly likely that compliance standards will be more stringent for listed companies. Ongoing use of a VDR will aid transparency and speed of response to regulators’ requests for information.
The extra security provided through a VDR is also invaluable and it can be updated as new regulations come through. For example, the European Union’s General Data Protection Regulation came into effect in May with the aim of safeguarding individuals’ personal information. It imposes complicated demands upon companies but these can be met through the use of VDRs, which can be continuously audited and adapted to new requirements and technology as they develop.
Documents create value
The value of having robust documentation for companies going through an IPO is hard to exaggerate. Unclear and/or incomplete data and documents often lead to price reductions and can even cause an entire sale to fall through. It also leaves companies open to regulatory actions if they cannot demonstrate due diligence.
It is crucial that a VDR has in place a stringent and standardised index structure for all assets within a portfolio, which promotes clarity and transparency.
Lifecyle VDRs: 5 elements to success
Careful planning is required to ensure that a life cycle VDR is structured correctly and that it includes all relevant documentation. There are five elements to implementing this.
First, before starting a project, it is important to get an accurate picture of the situation e.g. how far has a project progressed? How many documents are missing?
Second, time frames, processes and the responsibilities of all relevant parties should be defined.
Third, a project’s success is dependent on the acceptance and participation of various parties, so these should all be included in seeking solutions to the challenges posed by the need to change management processes.
Fourth, documents must be gathered from both internal and external sources and will sometimes need to be digitised before being transferred into a VDR. Detailed reports should be drawn up showing which documents are available and those that are still missing.
Finally, maintaining a life cycle data room is an ongoing process. Documents should be updated regularly, with new documents added as they become available.
Creating and maintaining a VDR can be a challenge initially, requiring a cultural change and an overhaul of processes for some companies.
But for those companies looking to go public, it would be perilous to ignore the benefits afforded by adopting a VDR such as Drooms NXG, which was the first data room to integrate machine learning technology to streamline workflows. Through increased efficiency, accountability and higher transparency, it can streamline the process to a highly successful IPO, giving senior executives the time to concentrate on strategy and business development - the pursuits that human intelligence still does best.
*Source: EY, Global IPO trends: Q2 2018