Treasury Today Country Profiles in association with Citi

Revisiting the treasurer’s role in an IPO

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With companies raising US$94.3bn in the first half of 2018, Treasury Insights revisits the treasurer’s role in an IPO.

Companies around the world raised US$94.3bn in the first half of 2018 through initial public offerings (IPOs). This is a 5% year-on-year increase and the highest proceeds for the first half of a year since H1 2015.

Notable deals thus far include the multi-billion dollar listing of Dutch payments firm Adyen and cloud-storage giant Dropbox.

These record numbers come despite a decline in the amount of overall IPO activity. Indeed, EY’s latest Global IPO trends report shows that there is a 21% decrease from H1 2017. Geopolitical uncertainty and shifting trade policies are cited as the main reasons for the slowdown.

IPO activity is expected to pick up in the second half of the year, however. EY says that this is because economic conditions continue to be encouraging, equity valuations are high in many parts of the world and interest rates remain low.

Looking at the role of treasury

An IPO is one of the most complex and multi-faceted events in the history of a company. For the treasurer, there is a great deal to do in aiding the CFO and other financial planners in going through the steps of an IPO. Particularly as the treasurer has become so much more of a partner in strategic decision-making with the CFO, the role of the treasurer in the IPO has grown.

The listing of a company on an exchange can provide innumerable benefits, including providing access to financing for strategic acquisitions or business expansion. It is a major turning point in the life of a corporation and can act as a catalyst for further business transformation.

An IPO naturally requires a great deal of planning and preparation in order to ensure not only that all steps are given the proper consideration and care, but also to manage the timing of the IPO to ensure that the offer price is consistent with the expectations of both the company itself and potential investors.

The pricing process is one of the most important steps on the long road to an IPO. If managed incorrectly, companies can see share prices drop off extensively after launch. Last year, for example, Snapchat owner, Snap Inc. issued a much-hyped IPO. Since then its stock has been downgraded with Morgan Stanley – the IPO’s lead underwriter – slashing the target price from US$28 to US$16 five months after listing.

Aside from timing, there are the intricate accounting rules and reporting requirements, the impact in terms of time and resources that must be dedicated to the IPO process, and the need to manage incoming stakeholders – including shareholders, and the board.

Another critical piece of the IPO puzzle is the roadshow. While the treasurer may or may not be a key player in the actual roadshows, they will likely be involved in preparing financials and other data and information that will be used by the CEO and CFO in the roadshows.

In addition, the treasurer may be expected to ensure smooth operational flow in the finance function, with the CFO and CEO potentially gone for as much as three weeks. It is essential for the company to put on a good show for potential investors and ensure that it communicates its vision for the future well.

Want to learn more?

Read this article for a deeper look at the role of the treasurer in an IPO and hear some first-hand insights from treasurers that have gone through the process.