IPO Readiness – More than just IFRS compliance

Whether a fledgling start-up company or a medium-sized global market leader: German companies are increasingly facing global competition. Going public through an Initial Public Offering (IPO) can be an attractive way to finance growth or a possible EXIT strategy – even or especially in the current market environment. However, a successful IPO requires some changes in the company's structures and processes in order to meet the necessary admission and follow-up requirements. Ensuring IPO readiness early on and in a targeted manner is therefore an important factor for a successful future on the capital market.

IFRS reporting as a basic requirement

The basic requirement for the admission and listing on the regulated market is that the issuer must follow the International Financial Reporting Standards (IFRS). For companies that do not yet prepare their accounts according to IFRS, the conversion to IFRS is therefore usually one of the first items on the action plan for becoming ready for the capital market.

Converting to IFRS involves different professional requirements as regard the persons involved and requires the development of new know-how. However, the conversion does not only affect accounting, but requires a closely interlinked collaboration between many corporate divisions in order to determine which information is necessary for accounting and reporting purposes. Processes and IT systems will also have to be adapted to the new challenges. It is therefore advisable to convert to IFRS allowing appropriate lead time before the planned IPO. In this way, the company has enough time to set up new accounting processes and meet the stricter reporting requirements under IFRS before additional transparency requirements related to being listed on the stock exchange come in. Then, once the company is public this is where it really starts.

Digitising the financial processes

Speed is an essential building block for successful communications with capital market players. Investors and analysts expect to receive reliable data about the company swiftly. And that at the highest level of quality. Once the company becomes listed on the stock exchange, the range of financial reports expands to include mandatory reports (e.g. quarterly reports, half-yearly financial reports, ad hoc announcements, sustainability reports) and voluntary reports (e.g. press releases, analysts' events and conference calls). The scope of necessary reporting increases also within the company itself. For the governance of the company, management needs transparent insight into the financial and non-financial figures at all times.

The digitisation and automation of financial processes can help to achieve the desired effects and thus save time and resources while increasing quality. The use of modern ERP systems, financial performance management software and disclosure management systems makes it possible to create a financial reporting process that will be as best digitised and with as few interfaces as possible. Standardisation and clear processes reduce manual, time-consuming workload. This reduces the time required for closing accounts and enables using the available resources in a targeted way. In terms of an IPO, the focus should therefore always be on improving the existing structures and processes.

Transformation of Corporate Governance structures

The pressure on good governance is growing massively and is increasingly becoming the focus of investors and analysts. The debut on the capital market comes with an increasing set of requirements for governance, risk and compliance management structures (GRC structures). National initiatives such as the Act to Strengthen Financial Market Integrity (Finanzmarktintegritätsstar-kungsgesetz, FISG) as a reaction to the Wirecard & Co case, regulatory requirements of the Federal Financial Supervisory Authority BaFin or those of the company’s target stock exchange are the focus here.

Especially for owner-managed medium-sized companies, it is important to conduct a fit-gap analysis early on so as to identify the necessary steps for establishing a GRC structure that will make a company ready for debuting on the stock exchange and to set the right course.

Essential components of good governance structures include risk and compliance management as well as the internal control system (ICS). The use of appropriate instruments improves the management and monitoring structures in the company and aims to ensure its sustainable growth.

GRC structures should be tailored to the size and needs of the company. In this process, one should take a broader perspective and plan the company's future – holistically and with the use of digital solutions.

Conclusion

Preparing for an IPO means much more than just converting to IFRS. Structures and processes must be adapted to the new requirements of the capital market. In addition to the classic financial reporting processes, this also concerns non-financial reporting as well as governance, risk and compliance management structures. The FISG is just around the corner. The topic of IPO readiness should therefore be put on the agenda of decision-makers early on if going public is planned in the future. Because readiness for going public is a matter for the boss.