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Blueprint for IPO Readiness
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© 2013 Protiviti Inc.
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If you are having trouble hearing the audio through
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• +1 866.966.9439
• Conference ID: 30626142
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 3
Meet Steve and Joe.
Steve Hobbs is our host and moderator today. He is Protiviti’s Managing
Director leading the Public Company Transformation solution.
Professional Background:
He works extensively with a number of pre-IPO companies in the social media,
technology, and consumer products industries. He has served over 100 public
companies during his 25 year career with assistance in IPO preparation &
execution, international expansion and numerous operational issues.
Numerous companies rely on Steve with their SEC investigations, inquiries,
financial restatements and comment letters.
Steve.Hobbs@protiviti.com
Joseph Brantuk is Vice President at NASDAQ OMX, managing new listings
efforts in domestic listings across all sectors.
Professional Background:
He brings over ten years of experience within the exchange field, to bear on his
work in guiding companies and their legal /financial advisors on the process of
listing on the U.S.’s largest electronic market. His focus on working with early
stage companies to maximize the financing and visibility opportunities that can
be provided by public capital markets means, he also works very closely with
venture capital, private equity and investment firms to educate them on the
liquidity options NASDAQ can provide Council.
Joseph.Brantuk@nasdaqomx.com
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 4
Meet Jim.
Jim McGeever is responsible for many of NetSuite's internal operations
including sales, services, support and administration, and spearheads
NetSuite's industry and customer satisfaction programs.
Professional Background:
He joined NetSuite in 2000 and, as chief financial officer, rapidly built a
global financial organization across seven countries and was a driving force
behind NetSuite's successful IPO in 2007. Previously, McGeever was
director of finance for Clontech Laboratories, the corporate controller at
Photon Dynamics, and a chartered accountant at Ernst & Young. He holds a
B.Sc. from the London School of Economics and in 2007 was named the
Bay Area CFO of the Year.
Jmcgeever@netsuite.com
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 5
Agenda
IPO Market Update
Public Company Readiness -
Infrastructure Considerations
Best Practices for Upgrading Financial
Systems, Processes and Controls
© Copyright 2010, The NASDAQ OMX Group, Inc. All rights reserved.
7
NASDAQ – Where the Ideas of Tomorrow Raise Capital Today
OVER $2 BILLION IN IPO
PROCEEDS RAISED
YTD BEST
PERRFORMING IPO
OVER 200
COMPANIES WITH
APPLICATIONS SUBMITTED
LARGEST
CONSUMER IPO
57% OF 2013 TECH IPOS
LISTED ON NASDAQ
CHOICE BRAND NAME
CONSUMER IPOS
8
U.S. IPO Pipeline
Source: www.RenaissanceCaptial.com
104
314
255 260
297
102 118
253 257
140
31
0
50
100
150
200
250
300
350
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
All IPO Filings by Year
9
Pricing and Sector Statistics Technology IPOs are the Most Popular in the Last 12 Months
Source: www.RenaissanceCaptial.com
68
216 192 196
214
31 63
154 125 128
30
0
50
100
150
200
250
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD
IPO Pricings by Year
23%
21%
18%
13%
11%
10
72%
56%
14%
9%
13% 11% 11% 11%
13%
3%
7% 10% 10%
14% 14% 13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2012 2013
1st Day “POP” Statistic
Average First Day Pop was 13% in 2013
Source: www.RenaissanceCaptial.com
11
Summary of Current IPO Market
• YTD, the top IPO industries were Technology, Financials, and Health Care.
Industry Breakdown
• 2013 YTD IPO pricings are down 22.4% from the same period in 2012
Pricing Activity
• Proceeds raised increased 37% 2013 YTD compared to the same period in 2012
Proceeds Raised
• 2013 YTD VC backed pricings are down 40% from the same period in 2012
Venture Backed IPOs
• 2013 YTD PE backed pricings are down 62% from the same period in 2012
Private Equity Backed IPOs
• Confidential filings under JOBS Act has reduced pipeline visibility US IPO. Currently 156 companies are in the pipeline
IPO Pipeline
12
The VIX is the CBOE Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed
using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward
looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk.
Market wide volatility is nearing the low levels we saw in January 2007.
As can be seen, volatility is one factor that can affect IPO pricings.
Volatility impacts on the IPO market
0
10
20
30
40
50
60
70
80
90
# of Priced IPOs VIX
VIX Market Volatility Index 2007 through March 2013
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 13
Do you have questions for Joe?
Poll Question 1:
What is the most interesting market outcome or
activity from 2012 to 2013 for you?
A. JOBs Act impact
B. Decrease in PE backed pricing from 2012
C. Top IPO industries: Technology, Financial,
and Healthcare
D. None of the above
IPO Readiness – Systems, Processes & Controls
© NetSuite Inc. 2013 Confidential 15
Jim McGeever, COO & former CFO, NetSuite
© NetSuite 2013 16
• NetSuite, 2000 – present
– COO
– 15th employee, former CFO
– Led N’s successful IPO in 2007
• Clontech, 1998 – 2000
– Corporate Controller
• Photon Dynamics, 1994 – 1998
– Corporate Controller
– IPO in 1995
• Ernst & Young
– Audit
Meet Jim McGeever
© NetSuite 2013 17
• World’s most deployed cloud ERP
• Used by 16,000+ organizations
• Fastest growing top 10 Financial
Management Solution*
• Used across approx. 100 countries
• Founded 1998
• Publicly traded on NYSE: “N”
• Offices in 10 countries
• 1,700+ employees
• 2012 revenue: $309M
Background Performance
* For North America Source: Gartner, April 2011
Powers Disruptive Innovators
Powers Enterprises
NetSuite: Quick Take
© NetSuite 2013 18
NetSuite’s Own IPO
18
Timing
• December 20, 2007
• Later in the year than originally planned
• IPO market was just starting to thaw
Approach
• NetSuite used a modified Dutch auction
• In theory this sets price closer to actual market value
• Credit Suisse underwrote
Results
• Opened at $26. Later surged to $35, peak was $45
• Raised 80% more cash than planned
• $1.5 billion market cap at end of opening day
© NetSuite 2013 19
• Consider how going public
will impact all areas of your
company
• Identify gaps between
public company
requirements and current
capabilities
• Assess expertise needed -
beyond legal & investment
banking
• Start acting like a public
company before you are
one
Pre-IPO Planning & Preparation
© NetSuite 2013 20
Improve Systems, Processes & Controls
Financial Systems: build a strong, comprehensive foundation
1. Revenue reconciliation between sales/orders and accounting
2. Ability to consolidate and close the books on a time; international
subsidiaries increase complexity
3. Strong forecasting capabilities for both revenue and expenditures
Processes & Controls: establish and improve
1. Processes and controls to ensure revenue recognition compliance; most
critical area and where automation will pay dividends
2. Processes and controls for major expenditure categories, such as
marketing or R&D
3. Employment agreements and approval of requisitions must be centralized;
allows you to control ~70% of your expenses
© NetSuite 2013 21
More Thoughts on Financial Systems…
• Recommend having 2-3 years of previously audited financials in your
system in advance of IPO
• Need the ability to have accounting policy changes reflected in your
systems
– Don’t just talk to your auditors talk to your peers
• Piecemeal approaches often lead to investments later that exceed the
cost of laying a comprehensive foundation in advance
© NetSuite 2013 22
Prepare for Rigorous Financial Reporting
• Consider in advance how things need to be after going public
– Automation is critical when there is rapid growth, scarce resources, high
transaction volumes, and no room for financial reporting errors
• Financial statement production must be clean and efficient
– NetSuite operates with a 7 day close. Dashboards provide management
with real-time MTD and QTD views.
• Its not just the Q’s and K’s
– Any number that you disclose publically especially on earnings calls
needs to have the same level of financial rigor as required disclosures
• Don’t forget the reporting you need to run the business
– SEC reporting is important, but management reporting is as or more
important
© NetSuite 2013 23
Establish Good Corporate Governance
• Don’t underestimate the time and effort required to establish good
corporate governance
• Ideally board members understand your industry and the challenges
the management team faces
• Executive management team and the board must establish and
maintain strong communication and governance practices
• A governance framework helps board members and executive
management understand their responsibilities and roles
© NetSuite 2013 24
Lessons Learned at NetSuite
1. Run like a public company before you become one
2. Invest early in your G&A team
3. Get a great stock administrator
4. Hire a tax professional before you think you need them
5. Don’t change auditors during the process
6. There is a lot to do BUT, its really not that bad
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 25
Do you have questions for Jim?
Poll Question 2:
Are you in the process of preparing for an IPO?
A. Thinking about it
B. In the process
C. Would like to start within the next year or so
D. No
Public Company Readiness -
Infrastructure Considerations
Steve Hobbs
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 28
Going Public – Business Implications
Accurate
Financial
Reporting
and Effective
Forecasting
The Company must ensure it has the requisite skills and organization to
understand the application of all relevant accounting principles and ensure
accurate financial reporting.
• SEC reporting
• Key judgments and estimates
• Significant accounting policies
• Internal reporting and forecasting
Efficient
Financial
Close
In order to meet the revised SEC filing requirements, the company must
ensure that it has an accurate and efficient financial close process.
• Expanded close process
• Timely filing restrictions
• Certifications and disclosure committees
• Expanded FP&A processes
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 29
Going Public – Business Implications (continued)
Appropriate
Corporate
Governance
and SOX
Compliance
Ensuring that the company has a robust, regulatory and corporate
governance understanding and an efficient, internal control environment is
critical to achieving initial and ongoing compliance with both SOX and
industry regulations.
• SOX readiness vs. compliance
• Board composition and committee charters
• Internal control and audit activities
Scalable IT
Environment
Reviewing the IT system environment/infrastructure to ensure that the
Company is able to handle projected growth in the business is imperative in
being public.
• Enterprise applications
• Governance practices
• Security and privacy
• Operational processes and controls
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 30
Going Public – Business Implications (continued)
Effective
Registration
Statement
Process
Ensuring that the distraction of the registration statement process to the
business in minimized and the process is effectively managed by a PMO.
• Enterprise-wide coordination and PMO
• Development of quarterly information
• Development of MD&A, CD&A & other SEC reporting (non-GAAP
measures)
Organizational
Capabilities
Reviewing key functions and skills needed to facilitate anticipated
sustainable, scalable growth as a public company.
• SEC reporting, budgeting and forecasting
• Investor relations
• Expanded treasury, legal and internal audit
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 31
Efficient Financial Close
A company that has an efficient, standardized financial close process will go a long way to ensuring
accurate and complete SEC reporting, not to mention a timely earnings release with quality review time in
advance from senior management, general counsel, external auditors and legal counsel.
Notes:
* A "Large Accelerated Filer" has an aggregate market value held by non-affiliates of $700m or more as of the last business day of the
most recent Q2. Once you are in, you have to fall below $500m to get out.
** An "Accelerated Filer" has an aggregate market value held by non-affiliates of $75-700m as of the last business day of the most
recent Q2 (unless you were previously a Large Accelerated Filer, in which case the range is $50-500m). Once you are in, you have to
fall below $50m to get out.
*** An Emerging Growth Company (EGC) files consistent with its Category of Filer (Accelerated or Non-Accelerated). An EGC is defined
as having total annual gross revenue < $1B and is exempted from certain regulatory requirements (e.g., Section 404(b) of the
Sarbanes-Oxley Act of 2002), for up to five years.
Category of Filer Form 10-K Deadline*** Form 10-Q Deadline***
Large Accelerated Filer* 60 days after fiscal year-end 40 days after fiscal quarter-end
Accelerated Filer** 75 days after fiscal year-end 40 days after fiscal quarter-end
Non-Accelerated Filer (all others) 90 days after fiscal year-end 45 days after fiscal quarter-end
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 32
Becoming SOX Ready
SOX Section Key SOX Activity Recommended
Implementation Timeframe
Section 404* 1. Document the Company's Significant Business Processes Affecting
Financial Reporting Prior to IPO
Section 404* 2. Identify Risk, Controls and Areas of Improvement in Internal Control
Over Financial Reporting Prior to IPO
Section 404* 3. Implement a process to test internal controls and report on that
testing Prior to initial 10-K
Section 404* 4. Remediate internal control gaps where necessary Prior to initial 10-K
Other Key
Considerations* 5. Evaluate Need for Internal Audit Function After 404 Compliance
Other Key
Considerations
6. Evaluate Need for Enhanced Financial Reporting Function to
Support New Reporting and Disclosure Requirements Prior to IPO
Section 302 / 906 7. Implement a CEO/CFO Certifications Process By initial 10-Q
Section 406 8. Make Code of Ethics and Business Conduct Policy Publicly
Available Prior to IPO
Section 301 9. Establish "Whistle Blower" Hotline Prior to IPO
Notes: * An Emerging Growth Company (EGC) is exempted from certain regulatory requirements including, Section 404(b) of the Sarbanes-Oxley Act of
2002 for up to five years, or until the earliest of four dates:
1. The last date of the fiscal year following the fifth anniversary of their IPO,
2. The last date of the fiscal year where total annual gross revenues > $1B,
3. The date the issuer has, during the previous three-year period, issued > $1B in nonconvertible debt; or
4. The date the company is deemed to be a "large accelerated filer".
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 33
Timeline – Based on an IPO in 18 Months
SOX Readiness Activities
• Risk Assessment
• Document Critical
Processes
• Validate Control Design
• Indentify Control Gaps
• Remediate Control Design
Gaps
2013
IPO
Eff
ec
tive
Da
te
2014 Q1 Q2 Q3 Q4
2015 Q1 Q2 Q3 Q4 Q2 Q3 Q4
Public
Company
Readiness
Assessment
Kickoff - All Hands Meeting
• Registration Statement
• Position Papers
• Drafting Sessions
• Due Diligence
• SEC Comments
• Road Show Address Private to Public
Company Gaps (focus varies
by Company):
• Financial Reporting
• Policy and Procedure
Development
• Planning and Forecasting
• Financial Close Process
• Org..Structure – Board
Composition, Governance
• IT Applications,
Infrastructure, Security
Phase I
4-6 weeks
Phase II
Preceding the IPO kickoff
(effort varies by company)
Phase III
4-6 months
Phase IV
Through 2nd 10-K Filing
SOX Compliance Activities
302 Certifications
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 34
AREA
1. IPO Preparation and Registration Statement
1 AF-1 S-1 Preparation / SEC Reg. S-X and S-K Disclosures
2 AF-2 Company Specific Reporting Requirements
3 AF-6 Interim Reporting
4 OR-1 IPO Project Management Office
2. Accounting and Finance
5 AF-3 Financial Close / Consolidation
6 AF-4 Budgeting and Forecasting
7 AF-5 Develop Ongoing Reporting Process (10-Qs / 10-Ks)
3. Organizational Readiness
8 OR-2 Chief Financial Officer
9 OR-3 SEC Reporting Function
10 OR-4 Investor Relations Function
11 OR-5 General Counsel
12 OR-6 Risk, Compliance and Internal Audit Function
13 OR-7 Tax Function
4. Corporate Governance and Compliance
14 GC-1 Legal Entity / Organizational Structure
15 GC-2 Board of Directors Composition, Committees and Charters
16 GC-3 Key Governance Policies and Committees
17 AF-7 Company-wide Policies and Procedures
18 GC-4 Sarbanes-Oxley Readiness
5. Information Technology Readiness
19 IT-1 General Controls
20 IT-2 People and Leadership
21 IT-3 Technology
22 IT-4 Business Continuity Management
No
w
Pre
-IP
O
Po
st-
IPO
Low Medium High
As part of the analysis our observations have
been plotted according to their urgency to
implement and estimated level of effort.
High Medium Low
Priority
1 2
4
6
5
7
3
8
9
10
11
12 13
14
16
19
22
18
17
21
15
20
Urg
en
cy
to
im
ple
me
nt
Prioritization Heat Map
Estimated Level of Effort
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 35
IPO
Effective
High Medium Low
Level of Effort
On-going Initial S-1
Filed
AREA Q2 2012 Q3 2012 Q4 2012 Q1 2013
1. IPO Preparation and Registration Statement
1 AF-1 S-1 Preparation / SEC Reg. S-X and S-K Disclosures
2 AF-2 Company Specific Reporting Requirements
3 AF-6 Interim Reporting
4 OR-1 IPO Project Management Office
2. Accounting and Finance
5 AF-3 Financial Close / Consolidation
6 AF-4 Budgeting and Forecasting
7 AF-5 Develop Ongoing Reporting Process (10-Qs / 10-Ks)
3. Organizational Readiness
8 OR-2 Chief Financial Officer
9 OR-3 SEC Reporting Function
10 OR-4 Investor Relations Function
11 OR-5 General Counsel
12 OR-6 Risk, Compliance and Internal Audit Function
13 OR-7 Tax Function
4. Corporate Governance and Compliance
14 GC-1 Legal Entity / Organizational Structure
15 GC-2 Board of Directors Composition, Committees and Charters
16 GC-3 Key Governance Policies and Committees
17 AF-7 Company-wide Policies and Procedures
18 GC-4 Sarbanes-Oxley Readiness
5. Information Technology Readiness
19 IT-1 General Controls
20 IT-2 People and Leadership
21 IT-3 Technology
22 IT-4 Business Continuity Management
Action Plan – Base Timeline IPO Readiness Timeline and Estimated Level of Effort
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 36
Going Public Under the New JOBS Act
Under the JOBS Act Still Applicable
Capital Raising
Emerging Growth Company election X
Confidential Form S-1 filings X
Increased flexibility for Regulation A filings X
Accelerated analyst reporting X
Relaxed investor solicitation and advertising X
Allows for crowd funding transactions X
Increase in unaccredited investor threshold X
Corporate Governance
Exclusion of selected executive compensation disclosures X
Possible exemption of future auditor rotation requirements X
Annual proxy statements X
Annual shareholder meetings X
Accounting and auditing complaints hotline X
Independent Audit Committee and at least one financial expert X
Compensation and Nominating committees X
Board risk oversight disclosures X
Compliance with applicable stock exchange listing standards X
Insider trading restrictions X
While the new JOBS Act provides for potentially easier (but limited) capital raising and a few relaxations
in disclosures, solicitation and the presentation of historical financial information, it does NOT change a
myriad of existing SEC and Stock Exchange requirements.
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 37
Under the JOBS Act Still Applicable
Finance, Accounting and Internal Controls
Option to exclude application of new accounting pronouncements X
Reduction in audited financial statement periods in Form S-1 X
Exemption from Auditor Attestation on Internal Control Over Financial Reporting (Section 404b) X
Quarterly certification on disclosure controls and procedures X
Management certification of Internal Control over Financial Reporting Section 404a) X
Quarterly Form 10-Q X
Annual Form 10-K X
Timely Form 8-K on material changes X
Annual financial statement audits X
Quarterly auditor reviews X
Effective P&L forecasting X
Adequate information systems X
Going Public Under the New JOBS Act (continued)
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 38
Do you have questions for Steve?
Poll Question 3:
What was the most tangible takeaway for you
from this webinar?
A. Better understanding of the IPO market in
2013
B. Financial processes, systems and controls
C. Infrastructure readiness considerations
D. All of the above
© 2013 Protiviti Inc.
CONFIDENTIAL: This document is for your company's internal use only and may not be copied nor distributed to another third party. 40
Confidentiality Statement and Restriction for Use
This document contains confidential material proprietary to Protiviti Inc. ("Protiviti"), a wholly-owned subsidiary of Robert Half International Inc. ("RHI"). RHI is a
publicly-traded company and as such, the materials, information, ideas, and concepts contained herein are non-public, should be used solely and exclusively to
evaluate the capabilities of Protiviti to provide assistance to your Company, and should not be used in any inappropriate manner or in violation of applicable
securities laws. The contents are intended for the use of your Company and may not be distributed to third parties.