Staying Transaction Ready in Uncertain Market Conditions

Explore three elements companies use for "transaction-readiness" in today's IPO landscape:

1. Establishing the Right System Infrastructure

Achieving transaction readiness for an IPO or major liquidity event means more than just having a clean cap table and accurate financials. Companies also establish compliance policies, corporate governance and system integrations, while thoroughly stress testing their technology, back-end systems and processes to help ensure a seamless experience for all transacting parties. Particularly for an IPO, significant accounting, payroll and HR systems integration may be required to ensure the company can capture and record public market transactions. The integration of these systems and the resulting experience for both shareholders and administrators can significantly accelerate or delay the transaction timeline.

Even companies with established Enterprise Resource Planning (ERP) systems or equity databases rigorously test them to ensure they are fully IPO-ready. Never underestimate the critical value of thorough testing and quality assurance (QA).

2. Data Integrity Focus

Managing data in a liquidity event is highly complex, requiring meticulous tracking of shares moving between buyers and sellers and thorough financial reporting. For instance, businesses going public typically need two years of audited financial history and the robust infrastructure necessary to sustain continuous quarterly reporting.

Centralizing corporate data is challenging, especially when ensuring accuracy and reconciliation. Performing a data health check can be an important step a company takes towards transaction-readiness, validating all details from individual equity awards, grant information to demographic data which need to be precise before the deal process commences.

Remember that a third-party ERP or equity systems do not necessarily catch an inaccurate grant issuance (though a reliable service provider can perform a data health check to help diagnose any issues). Ultimately, the transacting company remains accountable for the integrity of the underlying data ahead of a liquidity event.

3. Design the Right Participant Experience

As companies get closer to the transaction execution window, a lot of focus may shift towards the administrator and shareholder experience. To prevent delays during a liquidity event, companies approaching their transaction window may prioritize the participant experience. 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).

By partnering early with your equity service provider you can help to ensure a seamless transaction and prevent last-minute frustration.

The Takeaway:

As recent years have made abundantly clear, market conditions can rapidly change. By establishing the right systems infrastructure, data integrity and participant experience, companies may enhance their transaction readiness. Doing so can potentially provide greater control over the outcomes of their liquidity event when timing is uncertain. Implementing processes in private companies that mirror operations of public company stock plan cycles can help cut down on friction and errors when a transaction is on the horizon.

Explore how Morgan Stanley at Work specializes in helping companies prepare and execute liquidity events.

Transaction Readiness FAQ

1. What does “transaction-ready” mean for a private company in an uncertain market?
   It means having the people, processes and systems in place so you can facilitate the execution an IPO or secondary liquidity event when timing is right.
   
   
2. Why focus on transaction readiness when markets are volatile?
   Readiness is something you can have control over and helps minimize delays and provides flexibility on timing.
   
   
3. How can companies reduce execution risk ahead of an IPO or tender offer?
   Proactively organizing and validating equity plan data and workflows to help ensure fewer issues surface during the transaction window.
   
   
4. What should a company do if it’s not sure when (or whether) it will transact?
   Treat readiness as ongoing preparation to allow for agility if market conditions improve or an opportunity arises.