Low debt levels and top-notch management are the keys to a successful initial public offering (IPO) on the market.
This according to financial services firm Ernst & Young, which released a report this morning that said companies should prepare for their IPOs up to 24 months in advance.
According to Colleen McMorrow, Ernst & Young’s Canadian strategic growth markets leaders, many Canadian businesses looking to go public these days will face increased scrutiny from investors still feeling the effects of the global downturn.
Company debt levels are the biggest concern for investors, the firm said, adding that 63% of investors surveyed in a recent report ranked a company’s debt-to-equity ratio as the top factor for IPO success.
Before the recession, it was only the ninth most important factor for investors.
“Today, investors expect companies to be properly funded,” McMorrow said. “That includes reducing or refinancing debt before going public.”
And having a strong management team doesn’t hurt either.
Although investors base 60% of their IPO investment decisions on financial details, the report said, the other 40% are based in non-financial criteria.
“People are what make or break great companies,” McMorrow said. “Investors often say they back the people and not the plan, so companies need to focus on building a powerful management team with the right experiences, skills and incentives.”