Time to go public? We list our key tips for a successful IPO

The stock market year 2024 has so far offered broad gains both in Sweden and on the other side of the Atlantic, in New York. While the Swedish winter has retreated during the first quarter, it also seems that the ice has broken on the market both when it comes to M&A transactions and IPOs. But what is actually required for a successful IPO? AVA lists eight key considerations for companies considering an IPO.

In 2023, the news flow was dominated by the macroeconomy. High inflation and rising interest rates also affected the IPO market, which cooled down considerably. On the Stockholm Stock Exchange, only Rusta was listed, and activity was also lower in New York, as we have written about previously.

One quarter into 2024, it looks like interest has returned. In New York, the social media platform Reddit was listed on March 21, at a valuation of USD 6.4 billion, although significantly lower than the speculation before the IPO, and in Stockholm, the industrial technology group Karnell was listed the following day. Both IPOs were successful and the shares rallied in their respective first days of trading.

More activity in M&A

Activity in other transactions has also increased since the start of the year. Among other things, we have seen La Française des Jeux SA make a bid for Kindred of SEK 130 per share, the gaming company Embracer has announced that it will sell parts of Saber Interactive to one of the company's major owners, and the balcony and facade group Balco Group has acquired both the Finnish Riikku Group and Suomen ohutlevyasennus Oy, to name a few examples.

Activity has also increased among much larger companies. AstraZeneca made two small acquisitions in March alone, and US dividend aristocrat 3M announced the spin-off of its healthcare company Solventum, which will be listed and distributed to shareholders in early April.

Higher standards in a globalized world

With the technological advances of recent decades, the world's financial markets have become increasingly intertwined. As a result, already listed companies, but also companies considering a listing, now have access to a global investor base. This creates opportunities but also increases competition and complexity. Companies that operate in several markets and have many foreign owners need to adapt to macroeconomic trends, exchange rate changes, regulatory requirements and the interest of institutional investors in different parts of the world. All of this ultimately affects the valuation of the share.

Above all, regulatory changes, both at national and international level, have a major impact on preparations for an IPO. For example, an increased focus on sustainability has led to companies having to include sustainability information in the prospectus during their IPO process, often to a much greater extent than is required in an unlisted environment. It is therefore important for companies to keep up to date with regulations and best practices to ensure compliance while attracting a growing investor base that is increasingly valuing sustainability aspects. 

Investors' views on market risks and market trends have also become more homogeneous over the past decade, helping to define what constitutes an attractive investment case. For example, in recent years we have seen an increase in interest in the technology and healthcare sector, particularly in the wake of the pandemic. Current trends therefore play an important role for companies considering an IPO.

Eight tips for a successful IPO

Conducting an IPO takes different amounts of time depending on how well prepared you are as a company. At AVA Corporate Communications, we specialize in corporate communications and investor relations and have compiled our eight best tips below to get you started on the road to a successful IPO.

• Keeping the books in order. Before going public, it is essential to have well-structured and carefully audited financial statements. Your financial statements play a key role in attracting potential investors and meeting regulatory requirements. Ensure that all financial information is transparent, accurate and in line with applicable accounting standards by establishing clear internal processes and procedures for both accounting and external reporting. In a listed environment, late or inaccurate reporting is almost unforgivable. 
• Choose competent advisors. The choice of legal, financial and communication advisors is critical to the success of your IPO. Advisors with in-depth knowledge of your sector and a history of successful listings can offer invaluable guidance. Having competent support and guidance leads to a smooth process and facilitates your work for years to come by laying the foundation for your future IR work.
• Develop a professional and engaging online presence. A modern and informative website, complemented by a specific investor relations website, is fundamental to strengthening your company's brand and attracting investors. It facilitates communication with current and future shareholders and helps build trust and transparency.

• Strengthen communication with shareholders. Effective communication with existing and potential shareholders is needed throughout the IPO process. It is important to keep stakeholders well informed about the company's development and prospects. Spending time early on to create a communication strategy with clear guidelines and objectives will pay off later and lay a good foundation for building long-term relationships with the market.

• Be proactive in the face of regulatory scrutiny. Becoming a public company means increased attention from authorities. Prepare your company by carefully following all applicable laws and regulations. It is also important to have strategies ready to deal with any challenges that may arise. 

• Develop a long-term strategy. A successful IPO is just the beginning. To ensure continued growth and success, it is important to have a well-thought-out long-term plan that includes both product and business development.

• Have realistic expectations of the company's valuation. The process of setting a valuation for an IPO is often complex, especially if the company is cyclical or at an early stage where future potential for value creation is not yet visible on the bottom line. Having a realistic view of the company's valuation, based on analysis of historical performance and an understanding of the market in which the company operates, is important for a successful IPO. 

• Take care of your new owners. In many companies, an IPO often involves listing only a larger or smaller portion of the total stock. This part is often called 'free float', and refers to shares traded on the secondary market. In other words, it is the proportion of shares that can change hands during the day. An important thing to consider is having a reasonably large free float. This creates better liquidity in the share and facilitates pricing, which in turn leads to less volatility. At the same time, there are often both previous owners and institutional owners who have undertaken to subscribe for shares in the IPO who have also entered into lock-up agreements. If all of these expire at the same time, there is a risk that large owners will sell at the same time and the free float will increase dramatically, which can have a negative impact on the share price and smaller owners who have subscribed for shares in the IPO or have been added may feel cheated. The result is that the company is labeled as hostile to small investors and it can take a long time to rebuild trust.

How can AVA help my company?

If your company is interested in exploring the possibilities of an IPO, AVA can assist you throughout the process. Our team of experienced consultants are experts in IR, sustainability reporting and financial communication. In particular, we can assist you in preparing your company for the demands made on you by investors in a listed environment. We also have good contacts with experienced financial and legal advisors who can ensure that your process is as smooth as possible. Contact us today to find out more.