Domestic and global capital markets report alternate peaks and troughs in recent months and the resulting rollercoaster ride has worn down local enterprises with big ambitions for future growth.
An effective management team must be established, including independent board members who can provide valuable insights about how the business should be run
But a local tax, audit and advisory services firm advises against businesses losing heart.
Family-owned enterprises gearing up for an initial public offering (IPO) must be willing to undergo preparation work that normally takes three years, said a partner of P&A Grant Thornton, one of the country’s leading auditing and consultancy firms.
In the Philippines, raising capital via an IPO — defined as the first sale or distribution of tradable securities to the public — is a possible financing source for “next-stage” business expansion, apart from borrowing capital from banks and other financial institutions.
“In the capital structure of a business, it is advisable to have a good mix of debt and equity and one of the ways to raise equity, especially a lot of it, is through an IPO,” said Emiliano Librea III, P&A Grant Thornton partner and advisory services head.
He said a private enterprise must take a long-term view in the IPO journey and must not be dissuaded by economic and market cycles. Preparing well in advance provides the opportunity to build company value by improving its bottom line, business plan and management team in order to attract public investors, he added.
The degree to which the owner or founder is engaged or involved in the IPO journey can also spell the difference between success and failure.
Librea shared three steps to IPO readiness:
Family businesses must “clean up shop,” which entails assessing their financial health for the last three fiscal years, improving compliance and aligning internal controls and processes with international best practices. These housekeeping activities can help establish a good track record and enhance the historical value of their enterprises.
Family enterprises must have a compelling growth story to tell and build on that story for pitching to investors. In preparing for an IPO, the business must communicate a clear and cohesive vision of the future, goals and a roadmap. That also creates potential value for the business.
An effective management team must be established, including independent board members who can provide valuable insights about how the business should be run. “It’s like having consultants on board,” Librea said. Although the presence of independent directors is not required in the board of family-owned companies, the inclusion of reputable or distinguished individuals can enhance the governance aspect of organizations. “That creates a perception of value in the minds of investors. But once the company decides to go public, having independent board members become necessary,” Librea explained.
Once the enterprise is IPO-ready, choosing the right time to go public is as important.
“Proper timing of the IPO can bring up the company’s value as well,” he said.
The degree to which the owner or founder is engaged or involved in the IPO journey can also spell the difference between success and failure. “From the start, the business owners or founders should have a solid reason about wanting to do an IPO. The reason must be clear in their mind: ‘Why do we want to do this?’ They should know what exactly it is they want,” according to Librea.
P&A Grant Thornton has organized a series of roadshows in high-growth urban areas outside Metro Manila for small and medium enterprises (SME) aspiring to become publicly listed companies someday. The forum, “From Startup to Step Up,” is organized in partnership with Martinez Vergara Gonzalez & Serrano (MVGS Law) and UniCapital, in cooperation with the Philippine Stock Exchange. After a successful launch in Cebu City last July, the roadshow will also be brought to Davao on 7 December, as well as in Northern Luzon in the first quarter of 2019.
Participants will identify ways on how to go public, assess whether going public now or in the future is a viable option, prepare and reorganize their structure and strategy prior to an IPO and decide which option is best for their business.
“The roadshow will assist participating companies on how to increase their value by becoming more sustainable businesses,” said Librea. “Our ultimate objective is to provide a means for family-run companies to ensure that the enterprise can succeed beyond the owner’s lifetime and therefore pass on the benefits to their children and their children’s children. We want to teach them how they can effectively leave a legacy to succeeding generations.”