Staying Transaction Ready in Uncertain Market Conditions

The global market can be volatile, and it may cause companies to reconsider planned  liquidity events like an IPO or private tender offer. In the first half of 2022, IPO volume fell 37% in Q1 2022 from the prior year.¹

In the face of uncertainty, what companies can control is the degree to which they are “transaction-ready” for an IPO or secondary offering. Being proactive about transaction readiness can give a company more agency over future timing of a liquidity event, as well as minimize any delays leading up to the transaction.

If a company is thinking of going public or conducting a shareholder liquidity event in the future, here are three things it may consider to stay transaction-ready:

Planning a large-scale liquidity event or IPO can require a lot more than an up-to-date cap table, the right financial statements, and information disclosures. It can also require all the various compliance, corporate governance and accounting policies in place and a process for managing the various transacting parties.

Companies can be transaction-ready by ensuring they have the right backend systems and processes in place for an IPO or secondary. Particularly for an IPO, there can be a lot of accounting, payroll and HR systems that need to be working harmoniously together before a company is ready to capture and record public market transactions. How those systems all integrate and what the experience is like for stock plan administrators and shareholders can significantly impact the transaction timeline.

Even companies that invest in an enterprise resource planning (ERP) system or equity database, may need to stress-test those systems to ensure they have everything needed for when the company ultimately goes public. The value of testing and QA cannot be underestimated.

There’s a lot of data involved in a liquidity transaction. Not only are shares are being issued or exchanged between buyers and sellers, but there may be detailed financial disclosures required for participants. Companies that are going public may often need to provide audited financial statements as far back as two years and have the infrastructure in place to be able to produce those statements on a quarterly basis.

Gathering all that data in one place is a big challenge in itself; however, companies may also need to take steps to ensure their data is accurate and reconcilable. Performing a data health check can be one of the most important steps a company can take to be transaction ready. This includes everything from validating individual equity award and grant information to shareholder demographic data – all of it feeds into the transaction process and needs to be accurate.

Remember that a third-party ERP or equity system isn’t going to necessarily catch an inaccurate grant issuance (though a good service provider should help you perform a data health check to help diagnose any issues). Ultimately, the integrity of the underlying data for a liquidity event is the responsibility of the transacting company.  

As companies get closer to the transaction execution window, a lot of focus tends to shift towards the administrator and shareholder experience. There are a lot of moving parts in a liquidity transaction; the last thing a company wants is for transaction participants to be confused or frustrated and for that to cause a delay in the transaction. If the liquidity event involves employees, it can benefit a company to focus specifically on the participant experience to ensure their employees fully understand the implications of participating (both financially and from a tax perspective).

For companies that are months or even weeks away from conducting a liquidity event, partnering with their equity service provider to test and deliver participant experience can help mitigate unforeseen issues. 

As we saw during the 2020 pandemic, market conditions can change very quickly. Companies may want to be ready and have the right systems infrastructure, data integrity and participant experience in place. Doing so can potentially provide greater control over the outcomes of their liquidity event when timing is uncertain. Implementing behaviors in private companies that mirror operations of public company stock plan cycles can help cut down and friction and errors when a transaction is on the horizon.

Thinking of going public or conducting a shareholder liquidity program? Morgan Stanley at Work specializes in helping companies plan and executive liquidity events with ease. Our dedicated team focuses on helping companies prepare for the rigorous process of going public. Connect with us to learn more about how to stay transaction-ready in uncertain market conditions.