Top 10 IPO

readiness challenges
A Measures that matterSM global study
executive summary

!@#

Dear friends
Challenging markets may come and go, but companies that outperform the
overall market prepare early for their initial public offering (IPO). Businesses
need to undergo many months of advanced planning, organization and
teamwork before they are ready to go public. When the market timing is right,
its the companies that are fully prepared which are best able to leverage the
windows of IPO opportunity.
Market outperformers treat the IPO as a long-term transformational process
which brings change to every aspect of the business, organization and
corporate culture. We call the process of going public, the IPO value journey.
The journey to public company status must prepare an organization not only
for the defining moment of the IPO event, but also for a whole new phase of
corporate life.
This executive summary analyzes the top 10 IPO readiness challenges from
the perspective of C-level executives worldwide who have already experienced
success in their value journey. It also contains insights from our survey of
global institutional investors, as well as the cumulative experience of
Ernst & Youngs global network of IPO advisors.
The surveyed CEOs (who led the companies that outperformed the market)
highlighted four key themes as their advice for those who wish to go public:
Be well prepared and have a strategy
Understand the process
Have the right experienced team
Be a good and transparent communicator
Even in the midst of market turbulence, the list of companies preparing for
an offering continues to lengthen. We look forward to working with these
companies, as they prepare for their transformation from a private entity
to a public enterprise.

Contents
Introduction
The IPO value journey: top 10 IPO readiness challenges . . . . . . . . . . . . . . . . . . 3

I. Transaction readiness/planning, 2436 months prior to the IPO

IPO readiness challenge #1:

Preparing for the IPO value journey . . . . . . . . . . . . . 7

IPO readiness challenge #2:

Keeping your options open . . . . . . . . . . . . . . . . . 15

IPO readiness challenge #3:

Timing the market . . . . . . . . . . . . . . . . . . . . 16

II. IPO execution, 24 months prior to the IPO

IPO readiness challenge # 4:

Building the right team to take you public . . . . . . . . . . . 19

IPO readiness challenge #5:

Building your business processes and infrastructure . . . . . . 20

IPO readiness challenge #6:

Establishing corporate governance . . . . . . . . . . . . . 22

IPO readiness challenge #7:

Managing investor relations and communications . . . . . . . 23

IPO readiness challenge #8:

Conducting a successful IPO road show. . . . . . . . . . . . 24

III. IPO realization, 1224 months after the IPO

IPO readiness challenge #9:

Attracting the right investors and analysts . . . . . . . . . . 26

IPO readiness challenge #10: Delivering on your promises . . . . . . . . . . . . . . . . 28

The ongoing challenge: renewing and recreating . . . . . . . . . . . . . . . . . . . . . 30

Appendix
Executive study: measures that matter to outperforming companies . . . . . . . . . . . . . 31
Institutional investor survey: measures that matter in assessing new issues . . . . . . . . . . 32

Key findings
Even in a challenging economy, companies which
outperform the overall market prepare early for
their transformational IPO journey, so that they
are ready to launch when markets recover
Especially in an uncertain market, outperforming
companies explore alternative exit strategies to an
IPO, although public offerings are generally seen
as providing better valuations, access to capital,
visibility and credibility
Outperforming companies usually go public
to finance their growth strategy and use their
proceeds to fund acquisitions or market growth
Market outperformers start acting like public
companies at least 12 months prior to the IPO by
implementing critical changes to their strategic
and corporate tax planning, management team,
financial accounting, reporting and internal control
systems
Almost three-quarters of outperforming
companies in our survey undertook pre-IPO
transactions (e.g., debt financing, corporate
reorganization and equity financing) to enhance
the offerings value
Although only a quarter of surveyed companies
conducted acquisitions, alliances or joint ventures
prior to IPO, in hindsight, many executives believe
that such a pre-IPO transaction would have added
shareholder value
Institutional investors base an average of 60%
of their IPO investment decisions on financial
performance measures in particular, growth in
EPS, EBITDA and profitability
Institutional investors attribute an average
of 40% of their IPO investment decisions to
nonfinancial measures, placing the most weight to
management credibility, corporate strategy and
brand strength

Top 10 IPO readiness challenges

The executives choice of stock exchange

depends largely on which offers access to suitable
institutional investors who understand their
business model, greater stock liquidity and deeper
institutional pools
A strong management team and a highly
experienced group of advisors is critical to IPO
readiness execution
A strong infrastructure of people, systems, policies
and procedures which enables accurate financial
forecasting and regulatory compliance needs to be
in place before the IPO launch
According to surveyed executives, the two
major accounting issues are adjusting historical
financial statements to comply with local and
foreign reporting requirements and dealing with
consolidated subsidiary financial statements
Two key corporate governance challenges for
surveyed executives are recruitment of qualified
independent board members and enhancement of
internal controls
High-performing companies delegate key
communication responsibilities to their investor
relations team, focus on creating a high-quality
road show and keep investors informed through
regular communications before, during and after
the IPO
Market outperformers deliver shareholder value
by demonstrating effective investor relations
and finance function and, most importantly,
operational excellence

Top 10 IPO readiness challenges

Market outperformers1 prepare far in advance for their
transformational IPO value journey
Executing a company strategy requires access to capital. One of the primary ways to access
capital is to go public. Companies that have completed a successful initial public offering (IPO)
know the process involves the complete transformation of the people, processes and culture of
the organization from a private enterprise to a public one. So how does a company begin the allconsuming task of preparing to go public, which starts well before the IPO event and continues long
after? It is up to the CEO and senior executives to strike the right balance between executing the IPO
transaction and managing the day-to-day operations of the company. In the life-changing journey
from the private realm to the public markets, senior managers face numerous leadership challenges
which test the IPO readiness of their business. Therefore, the key question that a CEO and senior
executives need to ask is, Are we prepared?
Chart 1 | The IPO value journey

Planning

Execution

1. Preparing for the

IPO value journey
2. Keeping your options open
3. Timing the market

Realization

4. Building the right

7. Managing investor
team to take you public
relations and
communications
5. Building your
business processes
and infrastructure
6. Establishing corporate
governance

8. Conducting a
successful
IPO road show

10

9. Attracting the
right investors
and analysts
10. Delivering on
your promises

1. We define market outperformer or a successful IPO as one in which the stock price of the newly-listed company
outperformed its stock exchange or major regional index in the three years following the IPO

Start thinking about

it as early as possible and
speak to people whove
done it before, not just
the advisors.
CFO, UK

In the past 20 years, the IPOs of companies around the world have soared in number and value,
often enjoying stunning initial share price performance. However, many companies significantly
underperform the market, in both profits and share price during the first three years after
their IPO2. At the same time, a significant number of highly successful companies buck this
underperformance trend and enjoy stellar performances, outperforming the market in the three
years after going public.
What makes some IPOs so successful, while others underperform? Those who treat the IPO as just
a short-term financial transaction underestimate its far-reaching impact. Our extensive experience
and our 2008 Measures that matterSM research study show that successful executives start to plan
and make organizational changes at least a year before the IPO. Moreover, they treat the IPO event
as just one defining milestone in a larger transformation process which Ernst & Young calls the IPO
value journey. The value journeys structured approach to managing 10 IPO readiness challenges
may serve as a guide to a private company in its transformation into a successful public company
that continually delivers value to its stakeholders.

Challenging IPO markets come and go but winning

companies are always ready
The lessons learned from successful IPOs are even more crucial in volatile economic conditions.
Even when the financial climate is not ideal for raising funding, it could be a good time to be
planning for an IPO or any other deal. While waiting for markets to settle, executives may embark
upon the IPO value journey and, in the two-three year transformation process, fully prepare their
company so that it is ready to go public when markets recover.
As evidenced by the stock market activity of the last two decades, economic and market trends are
cyclical. The global volume of IPOs rose dramatically, from around US$11 billion in 1990 to US$210
billion in 2000. In 2000-01 with the bursting of the global technology bubble, IPO market euphoria
quickly dissipated, leading to a drastic slowdown in the 2002-03 market. By 2004, however, worldwide IPO market activity had begun to pick up, gaining healthy momentum in 2005.
Accelerated globalization of capital markets and buoyant investor confidence led to a record-setting
IPO boom in 2006 and 2007. Global capital inflows and expanding local economies led to stunning
growth in the IPO activity of the emerging markets, especially in the BRIC countries (Brazil, Russia,
India and China). The worlds largest IPO ever launched in 2006 Chinas largest state-owned bank,
the Industrial Commercial Bank of China (ICBC) raised US$22 billion. By 2007, global IPO activity
reached an all-time high of US$284 billion raised in 1,979 deals.
By 2008, market turbulence set off by the credit crunch led to a sharp deceleration in most
IPO markets around the world. Faced with more scrutinizing investors and stringent valuations,
record numbers of businesses withdrew or postponed their IPOs. Nonetheless, some high-quality
enterprises, primarily from the emerging markets, continued to be well received by the worlds
public markets. In the first half of 2008, 505 companies from around the globe raised US$79 billion
in the public markets. Even so, many more companies still waited on crowded IPO registration lists,
ready to go public once market conditions improved. Indeed, companies that undergo an effective
IPO readiness transformation during uncertain times will position themselves to be the first to take
advantage of improved equity market conditions.
2. This trend was first documented by Professor of Finance Jay R. Ritter from the University of Florida.

Top 10 IPO readiness challenges

Chart 2 | Global IPO activity 1995 2008

Capital raised
(US$B)

Number of IPOs

1837

1729

1748
1517

1372
$225

2000

1979

1883
$300

1537
1500

1042
1290
1000

$150
832

839

676

864

500
$75

$0

$86

$132

$145

$116

$177

$210

$94

$66

$50

$125

$167

$246

$287

$93

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
Q1Q3

Source: Dealogic, Thomson Financial, Ernst & Young

Our global study shows how todays outperforming companies

prepared for their successful IPOs
Since 1996, Ernst & Young has conducted a series of research projects called Measures that
matterSM to discover the key performance measures for a successful IPO. In 2008, the research
project was relaunched and expanded beyond its initial US scope to encompass a global spectrum
of company executives and institutional investors not just from the United States, but also from the
rest of the Americas, Asia Pacific and Europe3.
In our research, we closely examined the successful global IPO process, from the internal
perspective of the CEOs, CFOs and senior management of the worlds outperforming companies, as
well as the external perspective of global institutional investors. Our worldwide study yielded robust
indicators of the IPO readiness practices associated with an outperforming public company.
We also clearly ascertained the global measures that matter the financial and nonfinancial
performance measures that matter to executives and institutional investors. Our study has shown
that these measures do matter to corporate executives and contribute to the companys post-IPO
performance. Moreover, institutional investors take all of these measures into account when making
portfolio allocation decisions.
We hope that knowledge of global leading practices and measures that matter, which are largely
consistent regardless of geography or industry, will help executives around the world better prepare
their company for their new public status. The following executive summary of global research
results may serve as a benchmark for CEOs, their senior executives and shareholders who are
considering an IPO. How does your company measure up?

3. See Appendix for research details of the executive and institutional investor studies and profiles of respondents.

Part one

IPO transaction readiness/planning,

2436 months prior to IPO
Our global study clearly shows that companies which exceed
overall market returns make thorough planning an important
first step in their IPO value journey. Successful companies
usually begin to act like a public company at least a full year
prior to going public.

1. Preparing for the

IPO value journey
2. Keeping your options open
3. Timing the market

4. Building the right

7. Managing investor
team to take you public
relations and
communications
5. Building your
8. Conducting a
business processes
successful
and infrastructure
IPO road show
6. Establishing corporate
governance

Top 10 IPO readiness challenges

10

9. Attracting the
right investors
and analysts
10. Delivering on
your promises

IPO
readiness
challenge
#

Preparing for the IPO value journey

Develop a compelling strategic plan
Planning is critical. The first step in a successful IPO value journey is a careful exercise in defining
success. Then, with input from key stakeholders, executives create a comprehensive business plan
and detailed timeline regarding the operational, financial and strategic initiatives necessary for the
company to go public. The business plan needs to be long term, including the 24 months before and
after the IPO. Such a business plan should provide a clear road map for the company of its future
direction which may then be communicated to stakeholders. Market outperformers implement
critical changes early enough to allow for the changes to season in the organization.
Our experience shows that while a private company can function with an informal planning process,
institutional investors expect a public company to have a compelling strategic plan. Investors focus
not on a companys past history, but rather on its future direction. Thus, a convincing, well-thoughtout and well-documented corporate strategy is crucial.

We had a road map

indicating where we
wanted it to go. We would
have substantially missed
our targets if not for
focusing on a well-thought
out plan before the IPO.
CFO, Canada

Chart 3 | Executive survey: which of the pre-IPO changes had the greatest benefit
3 years post-IPO?
Strategic planning

31%

Building right executive team

31%

Financial accounting &

reporting systems
Public company board
composition & structure
Building investor relations function

18%
17%
15%

Percentage of executive respondents

Executive point of view

Over half of executives in our study say that developing and executing a compelling business
strategy is the biggest pre-IPO readiness challenge. At the same time, 31% of respondents say
that strategic planning provided the greatest post-IPO benefit as it allowed their organizations to
operate more efficiently.

Institutional investor point of view

Institutional investors rank corporate strategy execution and quality of corporate strategy as
the second and third most significant nonfinancial performance measures in their IPO investment
decisions. (Management credibility and experience is considered by most investors to be the
most important nonfinancial metric. See Chart 5.) These findings show that investors place great
emphasis on the credibility of a companys management team, especially their ability to develop
and execute a compelling strategic plan.

We chose to go public for

more liquidity, to grow
through acquisitions,
and to obtain more
clients through improved
visibility or reporting.
CFO, USA

Make sure an IPO is the right strategy

Going public is not for every company. The pitfalls are numerous and the stakes are high. Lack of
adequate preparation and poor market timing can jeopardize an IPO. Its important to understand
the suitability of the IPO for the business, given a companys business model, growth potential and
the stage of the companys life cycle.
Outperforming companies weigh the benefits of going public against the drawbacks, as well
as against the company and shareholders objectives. The possible benefits of going public are
numerous, including: improved financial condition, liquid currency, more capital to sustain growth,
increased shareholder value and share price, incentives for management and employees through
stock options, enhanced corporate image, a path to mergers and acquisitions, better future
financing opportunities and the ability to benchmark operations against other public companies
from the same industry.
The potential drawbacks of going public can include: loss of control and privacy, limits on
managements freedom to act, the demands of periodic reporting, initial and ongoing expenses, the
burden of dealing with shareholders expectations and increased disclosure requirements.

Chart 4 | Executive survey: what was the most important motive in leading your company
to seek an IPO?

Fund market growth/acquisitions

38%
19%

Provide exit for VC/PE sponsors

Enhance credibility/visibility
with stakeholders

13%

Facilitate future nancing

13%

Provide exit for owner/shareholders

9%

Percentage of executive respondents who consider

factor as most important

Executive point of view

Outperforming companies go public to realize growth potential and view the IPO as one of the
key enablers to their growth strategies. Specifically, 38% of executives cite the desire to fund
acquisitions or market growth. 19% focus on providing an exit for venture capital or private equity
sponsors. Indeed, the role of private capital sponsors is expected to grow for many reasons,
including the increased availability of private capital around the globe and the lengthening of the
median time between the initial investment to IPO during challenging markets.
Almost all executives surveyed are pleased with their IPO experience. However, a small minority
(8%) say that they would not advise others to pursue an IPO, and that it might be better to remain
private or consider alternative options.

Top 10 IPO readiness challenges

Evaluate which pre-IPO transactions could enhance the

offerings value

The pre-IPO transactions

gave scale to the listing,

A companys overall transaction strategy is made up of much more than the IPO itself. Strategic
transactions are powerful tools for accelerating development of a business. Therefore, while
preparing for an IPO, executives should also evaluate which additional strategic transactions could
enhance the value of the IPO for the company before going public (i.e., acquisitions, venture
capital, private placements, mezzanine financing, joint ventures, alliances and recapitalizations).
Not only should a well-planned and executed transaction add shareholder value, it should also
improve the companys credibility with market analysts and investors.
Our research has found that successful companies typically undertake transactions in advance
of going public to help them achieve the maximum value. These include transactions to acquire
a company, to finance/refinance, to reorganize the business and to strengthen competitiveness.
Furthermore, successful companies also conduct transactions after the IPO. According to a US
Ernst & Young study, 77% of the US companies surveyed that conducted a transaction after the IPO
were trading at a premium as of the end of June 2007.4

provided complementary
facilities for ongoing
growth and provided a
platform for operations,
management and
financial reporting.
CFO, Australia

Chart 5 | Executive survey: which transactions did you execute in anticipation of

your companys IPO?

Debt nancing

Corporate reorganization
2
to segregate business line/division
Equity nancing without a
3
liquidity event for shareholders
Acquisition

29%
27%
24%
28%

1. 40% of respondents from Americas have undertaken debt financing, compared with 29%
from Asia Pacific and 17% from Europe.
2. 35% of respondents from Asia Pacific have undertaken corporate reorganization, compared
with 28% from Europe and 21% from Americas.
3. 39% of respondents from Asia Pacific have undertaken equity financing, compared with 28%
from Europe and 12% from Americas.

4. Ernst & Youngs IPO Success Factors from the Class of 06/07, 2008

Executive point of view

The financial
transactions pre-IPO
provided a clearer story,
greater opportunities and
a better business.
CEO, UK

In our survey, 73% of the outperforming companies conducted transactions prior to the IPO. In all
three regions, debt financing was the transaction most frequently taken prior to IPO (for 29% of
companies surveyed), followed by a corporate reorganization to segregate business line/division
(27%) and equity financing (24%). 19% undertook an acquisition prior to their IPO.
Regional comparison: 40% of companies in the Americas undertook a debt financing. At least
until the credit crunch, US companies tended to take on more debt financing since it was less
expensive than equity financing. 39% of companies in Asia-Pacific pursued equity financing
without a liquidity event for shareholders. Asia Pacific companies may have pursued equity
transactions in part because both long and short term debt financing options were limited in
the region. 28% of companies in Europe underwent a corporate reorganization to segregate a
business line or division. Among other benefits, such a transaction added shareholder value as it
makes the companys business model easier for investors to understand.
Interestingly, while 19% of companies undertook an acquisition, 16% of executives that did not
embark on an acquisition wished they had done so, believing it would have added shareholder
value. Similarly, while only 8% of companies conducted alliances or joint ventures prior to the IPO,
17% of executives that did not pursue such transactions believe it would have added shareholder
value. By contrast, only 4% of those companies that did not undertake debt/equity financing or
corporate reorganization prior to their IPO felt that, in hindsight, these transactions would have
been beneficial.
Overall, 90% of executives believe that the pre-IPO transactions their companies carried out
contributed to shareholder value. Furthermore, investors look favorably upon a company that
executes their growth plans. Much of the underlying motivation in pursuing pre-IPO transactions
seems to have been to engineer a business that the market can readily understand. For instance,
a streamlined company structure may allow executives to present a clearer, more focused business
model. For other executives, the IPO may help them to make tough business decisions and gave
them a clear goal.
Regional comparison: For a quarter of executives surveyed in the Americas, pre-IPO transactions
added to shareholder value by facilitating growth and strengthening the business. The same
number of executives in Europe say pre-IPO transactions added shareholder value primarily by
increasing company revenues. In Asia Pacific, pre-IPO transactions are often designed to expand
the companys business model into new markets.

Understand the main stock price drivers institutional

investors
As the recipients of 70% to 80% of IPO stock allocations, institutional investors drive stock prices.
The highly sophisticated institutional investor market includes insurance companies, pension funds,
money management funds, larger corporate issuers, investment bankers and other corporate
finance intermediaries.
Our research demonstrates that the more institutional investors that invest in a company, the better
it is for the business, since these investors tend to work together to make key portfolio allocations.
According to a 2007 Ernst & Young study, US companies with at least 80 institutional investors are
more likely to outperform the index, offering a 40% premium. Those US businesses with fewer than
40 institutional investors are more likely to underperform the index.5
5. Ernst & Youngs Lessons from the leaders, How to prepare for a successful IPO, 2008

10

Top 10 IPO readiness challenges

In our 2008 global survey, we find remarkable consistency among institutional investors in their
relative weighting of various performance measures during their IPO decision-making. In general,
the measures that matter to investors in our survey do not vary significantly between any particular
type of investor, investment strategy, geography or industry.

Know which financial and nonfinancial measures matter

to investors
Our study clearly shows that investors take both financial and nonfinancial criteria into account
when making buy/sell decisions. On the one hand, institutional investors say that vital financial
performance measures (such as growth in earnings per share, profitability and EBITDA) are the
chief investment criteria and justify on average 60% of their portfolio allocation decisions. These
financial metrics help investors determine the attractiveness of the companys valuation and
how the IPO is priced (which is typically at a 10% to 15% discount relative to its peer group of
comparable companies).
On the other hand, institutional investors say that an average of 40% of their IPO portfolio
allocations are based on nonfinancial measures even in their evaluations of the largest, mature
companies. Our research over the past decade has consistently shown that nonfinancial metrics can
be seen as leading indicators of future financial performance. We have found that the executives
who can skillfully measure, manage and communicate their nonfinancial performance will gain a
competitive edge and may significantly improve their companys operating performance, valuation
and ability to attract new investment capital.

Chart 6 | Institutional investor survey: rate the importance of the following performance
measures in your decision-making related to IPO stocks.
Average importance of the
top ten financial measures

Average importance of the

top ten nonfinancial measures

EPS growth

4.2

Management credibility
and experience

Protability growth

4.2

Corporate strategy execution

EBITDA growth

4.1

4.7
4.3
4.1

Quality of corporate strategy

Return on equity

4.0

Brand strength

4.0

Return on investment

4.0

Corporate governance practices

4.0

Sales growth

4.0

Ability to recruit/retain
talented people

Return on assets

3.7

Gross margins

3.6

Debt to equity
Cash and investments
on hand

3.5
3.1

3.9

Quality of IR guidance

3.8

Market share

3.8

Customer satisfaction

3.8

CEO leadership style

3.7

Note: Respondents were asked to rate importance on a scale

of one (least important), to five (most important)

11

Institutional investor point of view

According to surveyed institutional investors, the three most important financial measures in their
IPO decision-making are growth in earnings per share, profitability and EBITDA. These results reveal
the striking change in profitability and the relevance of various financial measures when a private
company goes public. Sales growth, cash and investments on hand are usually the key financial
measures for a small private company without shareholders. But in a public company, shareholders
focus primarily on continued growth in EPS, cash flow and profitability.
At the same time, the five nonfinancial measures given the most weight by institutional investors
in our survey are: management credibility and experience, corporate strategy execution, quality of
corporate strategy, corporate governance and brand strength.

Benchmark to ensure competitiveness on key measures

Executives of a public company must become familiar with their peer group of competitive
companies and the accepted terms of comparison. A companys performance measurement
practices need to be aligned with the demands of the market well in advance. In our survey,
executives of highly successful companies report that they were in a leadership position for
practically every aspect of financial/nonfinancial performance before the IPO.

Chart 7 | Executive survey: how did your organization compare to your key competitors
before launching the IPO?

Growth rate

70%

Sales performance
Protability
Market share

51%
47%
43%

Percentage of executive respondents who felt their companies

were stronger on this measure than their key competitors

Executive point of view

Our executive study demonstrates that successful companies significantly surpass their peers in
four key performance measures. Across all regions, market outperformers reveal a predominance of
strong growth rates prior to the launch of the IPO. 70% of successful executives state that their preIPO growth rate was stronger than that of competitors. 51% say their sales performance was better
and 47% claim that their profitability was greater.
Regional comparison: In our survey, companies in Asia Pacific performed more strongly than
their peers in the areas of sales performance and profitability prior to the launch of their IPO. By
contrast, European companies performed better in terms of market share and global operations.

12

Top 10 IPO readiness challenges

Choose the right stock exchange

For most companies, the domestic stock exchange is the straightforward listing choice. Indeed, over
90% of companies list on their home stock exchanges (and sometimes sell shares internationally).
The primary choice that needs to be made is between the domestic markets main board or junior
market. Smaller, younger companies tend to list on their home countrys junior stock exchange.
However, some companies may seek a foreign listing. Usually, these are larger companies with a
small domestic market which seek a higher profile and more than US$500 million in funding. A
foreign listing may help to maximize IPO proceeds, broaden its investor base or achieve a higher
valuation. A growing trend among companies that have already gone public is to consider whether
a foreign listing might help them to raise their profile, access different institutional investor pools or
achieve other long-range goals.
The best stock exchange will be the one which most effectively enhances the attractiveness of the
companys stock to investors. After a company goes public, the exchange should also continue to
meet a businesss needs.

Chart 8 | Executive survey: how important were the following factors in helping you to select
the stock exchange to list on?
Top ve factors

46%

Access to institutional investors

30%

Greater stock market liquidity

30%

Access to deeper institutional pools

29%

Brand building in local market

28%

29%

Greater valuation

29%

27%

42%
31%

Bottom two factors

Lower costs
Fewer corporate
government requirements

17%

19%
14%

8%

Percentage of executive respondents

Fairly important

Very important

13

Executive point of view

Both executives and institutional investors focus on a similar set of drivers in choosing the right
stock exchange. For both groups, the choice of exchange is most likely to be determined by access
to suitable institutional investors who understand their business model (76%) and a quest for
better stock market liquidity (72%), rather than intrinsic qualities of a particular exchange (e.g.,
reputation and corporate governance standards).
Although the valuation likely to be achieved does matter, companies are not necessarily striving to
achieve the highest possible valuation. Furthermore, given the high overall costs of going public,
the costs of an exchange appear to be relatively negligible for most executives. The corporate
governance/reporting consequences of listing on a particular exchange are also given relatively
little weight in the choice of exchange.

Institutional investor point of view

However, investors value high corporate governance standards in foreign listings. 70% of investors
say they are more likely to invest in a company that lists on a foreign exchange with higher
corporate governance standards than those of its home market. Likewise, 73% of investors observe
that they would be less likely to invest in a company that lists in a country with lower corporate
governance standards than those of their home market.
Regional comparison: For institutional investors who make investments in BRIC countries, access
to suitable institutional investors is an even more important factor since such investor pools
are not necessarily available in their home markets. For instance, in China, finding the investor
community that understand the companys business model is paramount. By contrast, in the UK,
finding the best corporate tax treatment tends to be the key to choosing the right stock exchange.

14

Top 10 IPO readiness challenges

IPO
readiness
challenge
#

Keeping your options open

Evaluate alternative exit strategies
Successful executives explore potentially attractive alternatives to a public listing, before settling on
the traditional IPO as the chosen route to monetization. The goal is to achieve the optimal value for
a companys current situation and future objectives. Compared with the public markets, the private
capital markets may be a more realistic, feasible, lucrative and less costly vehicle for raising capital.

Consider carefully the

Increasingly, businesses keep their options open by grooming for more than one source of funding.
Alongside IPO preparation, a companys transaction options may include investment by a private
equity firm, strategic sale through the M&A market, joint ventures, alliances, Rule 144A placements,
private exchange and international listings or a dual/multi-track approach (concurrent pursuit of
any combination of the various capital raising strategies).

of substantial private

cost-benefit of additional
liquidity in a public market
versus the availability
equity funds.
CFO, USA

Its important to understand the pros and cons of each exit route and its suitability for the company.
Executives need to have a clear idea of whats involved, how long the process will take, what its
likely to cost and whether two or more routes need to be run in parallel. A multi-track approach
should reduce risk substantially without adding a great deal to the cost or time requirement because
many of the same preparations are necessary whichever route is chosen.
By diversifying its approach, a company can significantly expand its strategic options and
negotiating leverage. Thus, successful companies keep options open during the long preparation
process, especially in an uncertain financial environment.

Executive point of view

For executives in our study, the two primary alternatives to an IPO are to approach a private equity
investor (56%) or negotiate a trade sale to a corporate buyer (39%). However, only 29% of the
executives considered transactions other than IPO prior to going public. Ultimately, many executives
opt for an IPO because they provide better valuation, access to capital, visibility and credibility.

15

IPO
readiness
challenge
#

Timing the market

Start early and take time to prepare
Be patient and do
not go public if you
are not well prepared.
The preparation phase
is crucial.
CFO, Canada

While its best to go public in the most opportune market conditions possible, it is just as important
to be fully prepared to operate as a public company. Rather than simply timing the market,
outperforming companies take the full time needed for preparations, so that they are ready to
launch when market conditions are optimal. Our research indicates that the most common mistake
of newly public companies is to hurry into their IPO value journey just months before the IPO,
and before their company is ready. Typically, the frequent rush to go public could be attributed
to a pre-listed companys imminent need for capital, pressure from the advisors or board or the
desire to capitalize on a limited window of opportunity in the midst of changing market conditions.
Unfortunately, these are frequently the same companies whose results decline soon after the IPO.
Often, the more successful IPOs are launched by the more established and mature firms with
proven track records and an established brand name. It can also be a fairly good predictor of the
after-market value. For example, in an Ernst & Young study of US companies that went public in
2006-2007 and qualified for listing on the high-performing Russell 2000 Index, the average age
of companies was eight or nine years old, regardless of industry.6 Only 11% of the companies went
public in their first two years of operations. Our experience has shown that the growth stage of a
company can be an indicator of a companys stability and ability to consistently generate earnings.
Companies that exceed overall market returns have usually implemented the more time-consuming
critical changes a full 12 to 24 months prior to going public (e.g., strategic planning, building the team
and establishing the internal control, financial and accounting systems). Less time-consuming changes
tend to be implemented later on in the process, usually in the last six months (e.g., public company
board composition, the investor relations function and employee/executive compensation issues).

Chart 9 | Executive survey: when did you start implementing the following changes in
preparation for the IPO?
Strategic planning 17%

43%

Building the right team 20%

33%

Financial accounting and reporting systems 24%

Public company board composition 9%

36%
39%

33%
20%

Building investor relations function 6% 16%

38%
66%
74%

Percentage of executive respondents

More than 20 months prior to IPO

12 24 months prior to IPO

6. Ernst & Youngs IPO success factors from the Class of 06/07, 2008

16

Top 10 IPO readiness challenges

Up to 6 months prior to IPO

Executive point of view

For two-thirds of companies in our survey, strategic and corporate tax planning, internal control
systems, financial accounting and reporting issues were implemented at least 12 months prior to
the IPO. These findings make sense, since a private companys systems are usually of a much lower
standard and it takes time to establish systems which meet public company requirements.
On the other hand, public company board composition, the investor relations function and employee
compensation issues are generally left until later on in the IPO process, since they require less time
to establish. At the same time, executives say that finding independent board members was more
difficult than anticipated and, therefore, more time should have been allocated to their recruitment.
Finally, owners/managers were deemed the most influential in determining IPO timing by 58% of
executives. Business advisors carried the most weight in 26% of the companies, while venture
capital/private equity sponsors prevailed in 11%.
Regional comparison: The strong impact of owners/managers on timing was especially true
in Europe. In the Americas, 15% of executives claim that their venture capital/private equity
sponsors exerted significantly more influence than their peers in other regions. One simple
explanation is that private capital sponsors are more involved in the earlier stages in the
Americas and, therefore, are more influential. In Asia Pacific, 71% of executives observe that
owners/managers held more authority than any other shareholder.

17

Part two

IPO execution,
24 months prior to IPO
IPO readiness involves the acceptance and implementation of
change not just by executive management, but throughout
every aspect of the business, organization and corporate
culture. Market outperformers show flexibility and willingness
to implement change (e.g., in the composition of the board of
directors, employee incentive compensation plans, financial and
internal control systems and investor relations strategy).

1. Preparing for the

IPO value journey
2. Keeping your options open
3. Timing the market

18

4. Building the right

7. Managing investor
team to take you public
relations and
communications
5. Building your
business processes
8. Conducting a
and infrastructure
successful
IPO road show
6. Establishing corporate
governance

Top 10 IPO readiness challenges

10

9. Attracting the
right investors
and analysts
10. Delivering on
your promises

IPO
readiness
challenge
#

Building the right team to

take you public
Recruit and retain an experienced team
On the journey of transformation into a public company, success depends to a great extent
on a coordinated effort by internal management and the advisory team. In the case of market
outperformers, the internal team is in place and functioning well in advance of the IPO. The top
managers already have the experience and expertise to undertake the IPO and operate a public
company during the road show and long after its over. The outperforming companies develop the
compensation structures which will help to retain and motivate key talent within the organization.
Market outperformers also select experienced advisors, including underwriter, auditor, attorney and
investor relations executives with whom they will work in close collaboration. These advisors help
to prepare the business carefully, introduce the right investors, sell the companys story and, most
significantly, put a value on the business that reflects its position and potential.

Make sure you have the

right executive team
with experience in IPOs
and diverse backgrounds.
Choose first class advisors
and get everything very
thoroughly planned.
CEO, USA

Executive point of view

Over half of the executives say that building the right management team is an important factor in
building and realizing shareholder value.

Institutional investor point of view

For the vast majority of investors in our survey (95%), the single most important nonfinancial
performance measure in their decision-making is the quality of management credibility and
experience. Over half of investors surveyed believe that the effectiveness of performance-based
compensation policies is a key metric since it greatly affects the ability of the firm to recruit and retain
highly talented senior management. As for building an effective advisory team, 65% believe that the
strength of the underwriter is a decisive factor, while 39% consider the quality of the accounting firm
to be significant.

19

IPO
readiness
challenge
#

Building your business processes

and infrastructure
Construct a strong infrastructure for accurate
financial forecasting

Changing our
financial processes
and infrastructure
had a positive impact
on investors market
perception of our
company and that was

The infrastructure and systems of a publicly traded company are very different from a typical
private company structure. Before listing, an organizations financial, accounting, tax, operational
and IT processes, systems and controls must be able to withstand the rigors and scrutiny of public
company status. Before going public, executives should have in place, the infrastructure (of people,
systems, policies, and procedures) which will enable the production of quarterly and annual reports
in compliance with regulations. Currently, compliance of the infrastructure with local and foreign
regulations is a major undertaking. As more countries around the world require IFRS for listed
companies, differences between local and foreign regulations will diminish. However, its still a
significant endeavor for a company to change its local accounting standard to meet IFRS standards.

reflected in a significant
increase in our share
price.
CEO, Australia

Our experience shows that a strong infrastructure should facilitate regulatory compliance, protect
against risk exposure and provide guidance to meet or beat market expectations. Furthermore,
such an infrastructure will ensure business execution continues apace despite the focus on the
IPO transaction.
Pre-listed companies need to improve their budgeting and forecasting capabilities, enhance external
financial reporting, put financial statements in order, prepare to comply with local securities law and
consider potential IPO accounting and reporting issues.
Companies may also require some corporate housekeeping. For instance, they need to consider
whether the existing corporate, capital and management structures are appropriate for a public
company and whether the transactions with owners and management have been properly
documented.

Chart 10 | Executive survey: what were the most challenging accounting and financial
reporting issues that you faced during the listing process?
Adjusting historical nancial statements to
comply with local regulatory requirements

40%
35%

Consolidated subsidiary nancial statements

Adjusting historical nancial statements to
comply with foreign listing requirements
Tax accounting and reporting issues
Related-party transactions

34%
23%
20%

Percentage of executive respondents

20

Top 10 IPO readiness challenges

Executive point of view

Senior executives cite the importance of building financial and accounting systems early, as the
third most beneficial change for post-IPO value. At the same time, building the financial and
accounting systems can be challenging, especially adjusting historical financial statements to
comply with local requirements, dealing with consolidated subsidiary financial statements and
adjusting historical financial statements to comply with foreign listing requirements. These three
challenges are driven primarily by the existence of relatively weak accounting standards in many
countries. Even though IFRS is becoming the global financial reporting language, this is only true of
listed companies. Therefore, these daunting accounting issues are likely to continue for pre-listed
businesses which have not yet gone public.

Institutional investor point of view

Quality of guidance is considered by investors to be one of the key nonfinancial metrics, which
underscores the importance of having an appropriate financial infrastructure in order to forecast
finances accurately.

Changing our internal

control systems helped
us meet the accounting,
tax, legal and procedural
requirements and was
the single pre-IPO
change with the greatest
beneficial impact to our
operations.
CFO, Singapore

21

IPO
readiness
challenge
#

Establishing corporate governance

Create the corporate governance policies that inspire
shareholder confidence
You must be well
prepared, as the
requirements for a public
company for corporate
governance and internal
controls are much
higher than for a private
company.
CFO, Hong Kong

Executives of the outperforming companies adopt the best practice corporate governance principles
and reporting policies that protect shareholder interests. They take the time to build a public
company board with a substantively disparate mix of compensation, compliance and governance
specialists, corporate strategists and experienced business and financial executives.
With heightened corporate governance standards for public companies, the process of attracting
qualified independent board members is more complicated and critical for IPO candidates these
days than it was in the past. Public company boards require a different skill set compared to
private company boards. With intense individual scrutiny and liability for todays public company
directors, substantial time and effort is required to identify, appoint and groom a qualified board of
independent directors.
Chart 11 | Executive survey: what were the top three most challenging corporate governance
issues that you addressed in the IPO process?
Recruiting qualied independent
board members

48%
47%

Enhancing internal controls

31%

Forming qualied audit committee

Implementing board meeting and
reporting processes

30%

Creating management compensation structures

20%

Resolving related-party transaction issues

20%

Percentage of executive respondents

Executive point of view

Executives cite the change in composition and structure of the company board as one of the most
beneficial changes for shareholder value. The three most challenging corporate governance issues
are recruiting qualified independent board members, enhancing internal controls and forming a
qualified audit committee.
Regional comparison: Difficulty in recruiting qualified independent board members is cited by
57% of companies in Europe, especially for companies listed on the AIM exchange (71%). This
recruitment challenge could be a reflection of the wide variability in corporate governance
standards among various European countries. Furthermore, enhancing internal controls is cited
by 53% of organizations in the Americas, especially those listed on the NYSE (74%). The internal
controls difficulty for US executives could be attributed to the demanding nature of internal
control reporting requirements in the US. Furthermore, 58% of companies listed on the NYSE cite
the problems forming a qualified audit committee.

22

Top 10 IPO readiness challenges

Managing investor relations and

communications

IPO
readiness
challenge
#

Keep investors informed by regular communications

The investor relations function involves educating the public about the companys position in the
industry, providing a regular update of forecasts and identifying any key business issues that could
impact the company. Specifically, when a public company acquires a group of shareholders, it needs
to keep them informed of corporate developments in a variety of disclosure vehicles, including
annual and quarterly reports, proxy statements, press releases, direct mailings and shareholders
meetings. Shareholders, analysts and the financial press will critically evaluate managements
performance and focus attention on the companys share price.
Private companies often underestimate the need to court public investors, as well as the amount
of time it takes. While a private company does not require investor relations, the function becomes
a major priority for the public company. High-performing companies not only appoint the right
investor relations team, but also listen to it and give it some authority. Together, the company and
the investor relations specialists work to sustain the markets interest in the company, communicate
with shareholders and the public, attract a pipeline of new investors and sell-side research coverage
while managing regulatory and liability risk. Overall, the companys investment messaging needs to
define the core value proposition for investors and answer the question, Why invest now?

We need to communicate
with investors regularly.
They need to know, not to
guess, our business and
operations. We must be
transparent and honest.
CEO, Singapore

Executive point of view

Overall, half of the executives say they felt well prepared for the disclosure and investor relations
responsibilities. 58% state that managing investor relations and communications are key to building
and realizing shareholder value.
Regional comparison: Nonetheless, the confidence of the executives in their levels of preparation
for disclosure and investor relations responsibilities varies considerably across regions. For
instance, 22% of companies in the Americas felt very well prepared while 25% of European
respondents felt unprepared for investor relations responsibilities.

Institutional investor point of view

In our survey, two-thirds of institutional investors agree that the quality of investor relations
guidance and the road show presentation are key measures in their portfolio allocations.

23

IPO
readiness
challenge
#

Conducting a successful
IPO road show
Convey a compelling equity story in the road show

Ensure that youre

prepared to meet the
expectations that you
propose during the initial

Completion of the road show is one of the most challenging steps in the period between the
publication of a companys IPO prospectus and final closing. It is a vital step, since the road show will
likely be the only time a companys senior management meets the investor. Institutional investors
rarely visit the companies they invest in, preferring instead to rely on information presented at the
road show meetings and other sources.

road shows.
CFO, USA

On the road show, underwriters take senior management on a whirlwind tour and introduce the
company to key investment audiences, including the underwriting sales forces and prospective
institutional investors. Senior management tells the companys story and sells its investment merits
to these various stakeholders. They also address skeptics who pose challenges to the investment
thesis. Typically, the road show consists of intensive meetings in many locations over a two-week
period.
High-performing company executives aim to understand their stakeholder audience and learn how
to convey the companys performance to the investor community. They strive for a business plan
and messages that are realistic, consistent, clearly communicated, sustainable and supportable
over the long term. Executives need to be able to describe the companys specific lifecycle,
infrastructure, talent, board, partners and customer considerations. Furthermore, the road shows
presentation should be given in the investors language.

Executive point of view

An effective road show is rated as the third most significant factor in realizing shareholder value
by almost three-quarters of executives around the world, especially in the US (83%). There seems
to be a correlation between the number of institutional investors and the performance of the IPO.
Therefore, during roadshows, US executives should focus on trying to secure as many institutional
investors as possible.
Regional comparison: Over 60% of European and Asian executives agree that an effective road
show was important in building and realizing shareholder value.

Institutional investor point of view

A strong majority (88%) of institutional investors cite the quality of the road show as a key
nonfinancial measure in their buying decisions, with little variation across geographic regions.

24

Top 10 IPO readiness challenges

Part three

IPO realization,
1224 months after the IPO
Going public is a journey that goes far beyond the fanfare of the
road show and the IPO transaction itself. The last stage of the
IPO value journey starts after shares are priced and allocated
to institutional investors. Aftermarket trading then begins, and
the company starts its life as a public company. However, the
IPO readiness challenges faced by the CEO and management
team continue unabated. Many promises to stakeholders need to
be honored if the newly public company is to continue building
shareholder value.

1. Preparing for the

IPO value journey
2. Keeping your options open
3. Timing the market

4. Building the right

7. Managing investor
team to take you public
relations and
communications
5. Building your
business processes
8. Conducting a
and infrastructure
successful
IPO road show
6. Establishing corporate
governance

10

9. Attracting the
right investors
and analysts
10. Delivering on
your promises

25

IPO
readiness
challenge
#

Attracting the right

investors and analysts
Cultivate long-term relationships with investors

Be ready to dedicate all

the necessary time and
energy to the dialogue
with the investors, to
consider them as partners
as well as investors.
CEO, France

Once the IPO is over, the process of retelling and fine-tuning the companys investment story begins.
At first, many newly public companies enjoy high share prices fuelled, in part, by investors interest
in IPOs and by the press coverage for such companies. However, unless the markets interest in
the company is carefully maintained after the IPO, the initial euphoria will quickly fade away. The
trading volume and value of the companys shares will also decline. Thus, after the IPO event, senior
executives need to continually communicate the intangible business drivers of the company.
Successful executives target the type of investor that will maximize liquidity and valuation. They
strive to develop a proactive investor relations strategy that will attract the optimal ownership mix
and a long-term pipeline in the aftermarket. They aim to attract equity research analyst coverage
and to establish an ongoing dialogue with the investment community and financial media. Senior
management then needs to convey the companys value proposition through carefully crafted
messages to the targeted investors and analysts.
Outperforming executives determine which information to convey to the investment community and
effectively monitor and react to news about the company. Thus, knowing which information sources
institutional investors pay attention to is a keystone for formulating a successful investor relations
strategy.
Chart 12 | Institutional investor survey: please rate the following sources of non-financial
information used in your decision making related to IPO stocks.
Average rating of information sources
Company public lings or reports

4.1

Company management presentations

4.0

Buy-side analysis

3.9

Competitors

3.8

Customers

3.6

Sell-side analysis

3.4

Company investor relations department

3.4

Informal networks

3.3

Independent research rms

3.0

Business press

3.0

Note: Respondents were asked to rate importance on a scale

of one (least important), to five (most important)

26

Top 10 IPO readiness challenges

Executive point of view

In our study, 83% of executives say that attracting the right investors is an essential factor
in building and realizing shareholder value. When executives were asked to describe the key
lessons learned about communicating with institutional investors: Keep investors informed and
communicate regularly topped the list of responses (with almost half of executives mentioning this
theme). Keep promises, overdeliver and Strive for clarity and transparency were the responses
from one-quarter of executives interviewed.

We must keep institutional

investors well informed
about important
management decisions
and communicate the

Institutional investor point of view

information to them at

According to our survey, institutional investors pay the most attention to company filings and
management presentations, buy-side analysis, as well as what the competitors say about the
company. Contrary to the common view that blogs and online communities wield significant
influence on investors, our respondents rate blogs as the least important of information sources.

the right point in time.

CFO, India

27

IPO
readiness
challenge
#

10

Delivering on your promises

Provide shareholder value by keeping promises
My most important
advice to a CEO
considering an IPO?
Underpromising
and overdelivering,
transparency, early
communication, growth
distribution, managing
risk sensibly and carrying
out acquisitions to
create value.
CEO, Australia

Once a company goes public, the real work begins. A company must meet or beat the expectations
that it has set. After the IPO, the executive challenge is to deliver the shareholder value (and,
ultimately, share price appreciation) promised to stakeholders by the business plan, offering
prospectus and other communications. Promises will also have been made during the IPO and road
show to many different stakeholders, including investors, analysts, employees, customers and the
board, as well as the regulatory body, financial community and the press.
Being a public company means having to keep the promises made. Management must strive for
accuracy in projections and forecasts so that targets are hit quarter after quarter. Many newly
public companies seriously underestimate the level of market scrutiny that accompanies an IPO.
The public markets are an unforgiving place. A private company may endure negative publicity
without major repercussions. However, for a public company, a single negative news item that is not
well-managed by the investor relations function can have a significant impact on a stock price. In
some countries, missteps by newly-public companies are frequently used as the basis of shareholder
class action lawsuits. Thus, failure to deliver on promises will hurt a companys stock price.
Chart 13 | Executive survey: which factor is the most vital in helping you build post IPO
shareholder value?
Operational excellence

57%

Effective investor relations

53%

Effective nance function

Acquisitions/corporate
development
Innovation

45%
34%
29%

Percentage of executive respondents who

consider factor to be very important

Executive point of view

Over half (57%) of executives cite operational excellence as the most highly valued
characteristic for creating post-IPO shareholder value. (Operational excellence can be defined as
running the company well, successfully executing the business plan, meeting financial targets,
etc.) Nonetheless, as global competition grows, it is critical for public companies to also focus on
acquisitions, corporate development and innovation as key drivers of shareholder value.
Regional comparison: According to our survey, companies in the Americas and Europe
emphasize operational excellence as the most vital factor in building post-IPO shareholder value.
Businesses in Asia Pacific are more likely to cite the growth factors of acquisitions/corporate
development as the most significant factors.

28

Top 10 IPO readiness challenges

Use IPO proceeds to fund growth

From the perspective of both investors and executives, the best reason for a company to pursue
an IPO is to raise capital to grow the business, i.e., the expansion of business operations. Our
experience shows that investors are wary of investing in companies which use proceeds to pay
off debt or where management is cashing out by selling more than 30% of their shares. Clearly,
investors seek out companies with a persuasive growth plan.

Chart 14 | Executive survey: what were the most important uses of IPO proceeds?
Expand operations

51%

Improve working capital

42%

Move into new geographic markets

39%

Acquire another company(ies)

37%

Enhance marketing and branding

36%

Reduce debt
Develop new product/services
Enhance technology and infrastructure
Purchase equipment and facilities
Enhance nance function and systems

32%
28%
26%
24%
23%

Percentage of executive respondents

Executive point of view

For many outperforming companies in our survey, growth is the key driver. In keeping with this
trend, market outperformers are most likely to use IPO proceeds to fund growth and acquisitions,
whether through expansion of operations (51%), moving into new geographic markets (39%) and
acquisitions of other companies (37%).

29

The ongoing challenge:

renewing and recreating
Be ready to re-evaluate company strategy
Do not be blinded by
the euphoria of the
IPO. Companies are well
supported until the IPO

The IPO value journey is a recurring series of challenges for executives. In a constantly changing
world, executives need to maintain a clear picture of the opportunities and risks. They may need
to periodically return to the beginning of the cycle and recreate strategies and processes. Market
outperformers aim to continue accelerating their business, all the while building the infrastructure
and management practices that a mature public company requires.

but, once they are public,

things get complicated.
You need to be well

Executive point of view

prepared for the events

A company will always be surrounded with issues outside of its control, including the stock
market, economy and fluctuations within the industry. In our mid-2008 survey, executives were
asked about the current impact of key issues on their businesses. 84% of executives state that
recruiting talented individuals has had a significant impact on their business. 67% cite uncertain
economic conditions, regulatory and compliance risk (66%), industry consolidation/transition
(58%) and capitalizing on energy markets (43%).

that follow.
CEO, France

When communicating with investors, the executive focus should be on factors within the
companys control managing the business, producing the numbers and creating value. Credible
communicators speak with transparency about both opportunities and challenges in the business.
In todays challenging business climate, meeting or beating expectations and delivering on
promises remains as crucial as ever.

Throughout the IPO value journey, senior managements focus should not only be on going public
but also on being public. After positioning themselves as public entities long before going public,
market outperformers demonstrate superior financial performance and effectively communicate
non-financial attributes. Although IPO readiness can lead to a successful IPO outcome, all of the
best financial engineering will not create business prosperity only strong operational execution will
forge the path to long-term success. The IPO may be the most important transaction in a companys
history to date, but its often just one more milestone along the road to market leadership for an
exceptional enterprise.7

7. Ernst & Youngs Exceptional Enterprise Model highlights the six key business challenges companies should address and
the actions they should take to become a market leader

30

Top 10 IPO readiness challenges

Appendix
Executive study: measures that matter to outperforming
companies
In the Ernst & Young 2008 Measures that matterSM study, we undertook an independent survey of
companies that had recently launched and completed a successful IPO in order to identify the key
factors that contribute to post-IPO success. We defined a successful IPO as one in which the newlylisted companys stock price outperformed its stock exchange or major regional index in the three
years following the IPO.
Specifically, the survey population was made up of 750 publicly traded companies that launched an
IPO between 2001 and mid-2005, on one of the major stock markets in North America, Europe and
Asia.8 Representing a wide cross-section of industries and geographies, 142 qualifying companies
participated in and completed the study. The current average market capitalization of the companies
surveyed was US$1.85 billion.
Senior executives, predominantly CEOs and CFOs, participated in 30 minute phone interviews
consisting of a mixture of structured and open-ended questions and completed in-depth semiquantitative questionnaires. To qualify, these interviewees must have held a senior role at the
company during the preparation and launching stages of the IPO. 65% of respondents were holding
the same senior position as at the time of the IPO.

Chart 15 | Profile of executive respondents

By exchange

Toronto 5%
AIM 5%

NASDAQ
25%

Singapore 5%

London 8%

Euronext
20%

By region

Bombay 1%
Swiss 1%
So Paulo 2%
Tokyo 2%
Deutsche Borse 4%

By industry

Utilities 8%
Asia Pacic
31, 22%

Europe
53, 37%

Americas
58, 41%

Media and
entertainment
5%
Construction
and mining
9%

Banking
and
capital mkts
26%

Real estate 2%
Retail and wholesale 2%
Telecoms 2%
Other 2%

Consumer
products 12%

Pharmaceuticals 10%

Australian 9%
New York
13%

Technology 11%

Diversied industrial
products 11%

8. Companies from the following exchanges were included in the study: the New York Stock Exchange, NASDAQ, London
Stock Exchange, Alternative Investment Market, Euronext, Deutsche Brse, Swiss Exchange, Singapore Stock Exchange,
Hong Kong Stock Exchange, Australian Securities Exchange, Tokyo Stock Exchange and So Paulo Stock Exchange.

31

Institutional investor survey: measures that matter in

assessing new issues
In the 2008 Measures that matterSM study, Ernst & Young asked institutional investors through an
independent online survey about how they evaluate new equity offerings. The goal was to determine
what information institutional investors need or use most often, how they make buy and sell
decisions and to which criteria they give the most weight. A total of 361 institutional investors from
around the world rated the importance of various financial and nonfinancial performance measures
in their decision-making related to IPO stock investment in the survey.

Chart 16 | Profile of institutional investor respondents

By region

By role

Other, 5%

Other, 7%

Europe, 22%

Senior manager, 11%

Analyst, 32%
USA, 35%

Analyst and
portfolio manager,
28%

Latin America, 17%

Asia, 21%

By total amount
of assets managed

By type of institution
Other, 7%
Proprietory desk, 1%

Portfolio manager, 22%

US$150B or more, 5%
US$75B US$149.99B, 2%
US$30B US$74.99B, 8%

Insurance, 3%
Bank, 10%
Independent
investment
advisor, 10%

Hedge fund, 29%

Less than US$50M, 9%

US$50M US$99M, 6%

US$100M US$299M, 10%

US$10B US$29.99B, 12%

Pension fund, 9%

US$300M US$499M, 6%
US$5B US$9.99B, 7%

Broker afliate, 5%
US$500M US$999M, 12%
US$2.5B US$4.99B, 10%

Mutual fund, 26%

US$1B US$2.49B, 13%

By type of fund managed

Other, 11%

Growth, 20%
Hybrid, 48%

Value, 21%

32

Top 10 IPO readiness challenges

Ernst & Youngs global Measures that matterSM study

acknowledgements
Project steering committee
Any Antola (France) . . . . . . . +33 1 46 93 73 40 . . . . . . . . . any.antola@fr.ey.com
John de Yonge (Global) . . . . . +1 212 773 2541 . . . . . . . . john.de_yonge@ey.com
Jon Dobell (Australia) . . . . . . +61 2 8295 6949 . . . . . . . . . jon.dobell@au.ey.com
Greg Ericksen (Global). . . . . . +44 20 7980 0220 . . . . . . gregory.ericksen@uk.ey.com
Gil Forer (Global) . . . . . . . . +44 20 7980 0170 . . . . . . . . . . . gil.forer@ey.com
Jackie Kelley (US) . . . . . . . +1 949 437 0237 . . . . . . . jacqueline.kelley@ey.com
Jennifer Lee-Sims (Global) . . . . +44 20 7980 0494 . . . . . . jennifer.lee-sims@uk.ey.com
Philip Leung (China) . . . . . . +86 21 62191222 . . . . . . . . philip.leung@cn.ey.com
Michael Lynch-Bell (UK) . . . . . +44 20 7951 3064 . . . . . . . . mlynchbell@uk.ey.com
Andrew Shaylor (Global) . . . . . +44 20 7980 0549 . . . . . . andrew.shaylor@uk.ey.com
Kathryn Sullivan (Global) . . . . +44 20 7980 0543 . . . . . . kathryn.sullivan@uk.ey.com
Julie Teigland (Germany) . . . . +49 621 4208 11510 . . . . . julie.teigland@de.ey.com
David Wilkinson (UK) . . . . . . +44 20 7951 2335 . . . . . . . . dwilkinson@uk.ey.com

Project leader
Gil Forer, Global Director, IPO Initiative, Strategic Growth Markets, Ernst & Young

Report author
Jennifer Lee-Sims, Global Associate Director, IPO Initiatives, Strategic Growth Markets,
Ernst & Young

Report research analysts

Eva Chan, IPO Research Associate, Strategic Growth Markets, Ernst & Young
Jaya Kapur, Analyst, Strategic Growth Markets, Ernst & Young

Report art direction and design

Jeffrey Wolnowitz, Senior Designer, Creative Services Group, Ernst & Young US

33

Ernst & Young

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