Presented to the Babson Research Conference, June 2005-03-29
By Tom Mckaskill
There is little in the prior literature to help a firm decide if it is a good candidate for a IPO, although there have been a number of studies of characteristics of the firm at IPO time relative to price discounting and after market performance.
Method
This research project set out to identify those pre-IPO attributes that would contribute most to a viable IPO and a good after market performance. The initial list of attributes was established through lengthy interviews with investment bankers and professional advisors. The final list of 45 attributes was sent to around 500 executives active in the IPO process, most of them in private equity or venture capital firms. Completed surveys were returned from 93 respondents.
Results and Implications
Of the 45 attributes identified in the pre-survey work, only 25 were well supported. It seems that the level of revenue or size of the profit carries little weight with the survey respondents. The only strong indicator in terms of size and profitability of the business that is supported by the survey is the potential of the business to achieve $100 million capitalization. However, this might be predicated on having a robust business model with the right management team and a strong competitive advantage. Having a strong competitive advantage, strong industry knowledge and a robust growth strategy are seen to be important.
There is an overriding emphasis in the survey results on understanding the IPO process and having the right preparation internally and externally for the activity. This includes the right people in the management team and on the Board of Directors, the right selection of industry knowledgeable and respected advisors as well as a good understanding of the public market dynamics.
If a more robust list of desirable attributes can be developed, this will help venture capital firms and investment banks develop better strategies for IPO activities. At the same time those candidates that clearly are not able to achieve the desired attributes would be encouraged not to waste their time and money on an IPO process.
Contact : Dr. Tom McKaskill, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, PO Box 218, Hawthorn, Vic 3122, Australia. Tel: +61 3 9214 8422 Fax: +61 3 9214 8381,
