A company’s first year as a publicly listed concern can bring some surprises.
From financial reporting requirements to dealing with the media, a company’s first year as a plc can bring some surprises.
Gaining admission to the stock market can seem an end in itself, given the time and energy a company’s senior executives need to put into the process. But it’s the first year as a listed company that will be a real test of their mettle.
‘A float takes up a lot of the executive management team’s time, working on the prospectus and going to institutional presentations,’ says Gary Ashworth, chief executive of IT recruitment company InterQuest. ‘It zaps your energy. You shouldn’t underestimate the impact it can have on your business.’
While the chief executive and finance director have been busy preparing the initial public offering (IPO), they may not have been pursuing new business initiatives as aggressively as usual. That means their first few months as a public company may be characterised by “playing catch-up” – and, of course, the demands of the public market don’t go away. Ashworth adds, ‘As a public company, I would say you will spend two or three days a month thinking about investor relations, updating shareholders, making friends with private client brokers, arranging lunches, and trying to persuade people to do research [into your company].’
Keith Neilson, CEO of software company Craneware, agrees that being listed represents a serious commitment of time on the part of the management team. However, he contrasts it favourably to his past experience with the company’s venture capital backers.
‘Admittedly, [when we were VC-backed] it was unheard of for us to take a week out every quarter or six months just to speak to our shareholders as we do now,’ says Neilson.
‘On the other hand, when you add up all the time we did spend bringing [our VCs] up to speed, especially when the individual we were dealing with at the VC firm changed, it was actually greater than it is now when it is concentrated into a week.’
Naturally, it’s not just the amount of time spent that’s a factor. The type of questioning companies face from their shareholders, not to mention analysts and the media, also changes when you’re a public company. ‘They are more challenging questions,’ says Neilson. ‘Journalists, analysts and fund managers all seem to be able to go from a very broad picture to a much more detailed level of questioning than we were used to before we became a plc. I find that quite enjoyable; it means that no two meetings are the same.’
Both Ashworth and Neilson stress the importance of delivering on your financial forecasts, especially in that all-important first year. Legal consultancy Tikit, which joined AIM in 2001, found itself unable to do just that following the chaos in financial markets that followed the dotcom crash and the terrorist attacks on New York.
‘We floated in June, and met our numbers in our first interim results in December, but for our first full year we had to reset expectations,’ says CEO David Lumsden. ‘We did that at the half-year stage and found that, given
the circumstances, [our investors] were very understanding.
‘What we learnt is the importance of making sure you’re in line with the new figures if you do reset. If we hadn’t made them, a lot of people would have lost faith in us very early on.’
When you’re listed, it’s not just the figures, but how you report them that counts. Tikit’s FD Mike Kent explains, ‘One of the difficult things is segmental analysis in a business. It is very difficult at times to analyse costs and spread them over the various operating units.’
A system that works for one year could later break down as the business changes, Kent adds. ‘If you change your segmental analysis, then you have to explain [to shareholders and analysts] why things have moved.’
Attention to detail
Financial reporting standards can also cause a headache. Ashworth remarks, ‘While the financial discipline of being a public company can be helpful, the flip side is that there are silly accounting standards that are likely to confuse the average Sunday paper reader and sometimes even make auditors shake their heads in bewilderment.’
Neilson says that while you should get used to being more open about your numbers, you need to be careful not to give away information that could help your competitors.
‘Analysts want to get the best possible picture of your business, but they also realise there are commercial sensitivities,’ he states. ‘We are very careful that there is no information [in our results] that would allow anyone to reverse-engineer a price list, for example.’
It’s important to have reasonable expectations regarding liquidity, particularly if you are at the smaller end of the market. Ashworth counsels that you can expect to play an active role in making a market in your own shares.
‘Often your brokers have a “next please” attitude,’ he says. ‘Once they have their fees from the company, they would rather move on and do the next [IPO]. There is no money to be made trading second-hand AIM stocks.
‘You find that you’re matching all bargains yourself. If one of your institutional investors wants to sell some shares, you have to try and find private client brokers to deliver them to.’
Fame and fortune
For all the challenges of life as a public company, CEOs seem to relish the added profile it offers them. The extra time spent dealing with the market and maintaining a listing is compensated, in part, by time saved in getting in front
‘You tend to get more gravitas in the eyes of your customers and prospects,’ says Ashworth. ‘Dealing with a quoted company gives them a warmer feeling.’
Neilson agrees. ‘There is a lot of negativity around going to market, but we’ve found it a very positive experience and one I would recommend to anyone who is confident about delivering on their numbers. If you’ve got that confidence, there is nothing to be afraid of in becoming a public company.’