There Are Ways to "Prepare" for an IPO

Delays in the initial public offering process could lead to additional costs in an inflationary environment

• Ali Walked

The “IPO boom” we’ve been discussing frequently lately has entered a lull following the stricter criteria imposed by the Capital Markets Board (CMB) at the start of the year and the introduction of inflation accounting. In this period when everyone needs financing, it is essential to address the growing workload on stakeholders involved in the IPO process. Indeed, this workload can sometimes cause companies to lose time, leading to increased costs in an inflationary environment. 

Stakeholders in the Process

When a company’s board of directors decides to go public, three key stakeholders manage the process up to the point of approval by the regulatory authority. These stakeholders include independent audit firms, brokerage firms, and legal counsel. 

The initial public offering process begins with the preparation of audited financial statements. The preparatory phase, which continues until the prospectus is approved, takes at least six months and requires a high degree of discipline.

Once all necessary documents have been prepared and the process moves to the final stage of the public offering—the approval of the prospectus—efforts are made to schedule the validity periods for the financial statements included in the prospectus. This is because the validity period for each financial statement is four and a half months. In other words, for a company filing an IPO application, the deadline for using year-end financial statements is May 15, for the first quarter it is August 15, for the six-month statements it is November 15, and the final validity date for using the nine-month financial statements is February 15. 

Once the independent audit is completed, the brokerage firm reviews and analyzes the audit reports and prepares a draft prospectus. During the draft prospectus process, the company implements the revisions requested by the independent auditor. In the final stage, the completed documents are submitted to the Capital Markets Board (CMB) for review by a CMB expert. The CMB expert’s review and the process of addressing their questions is another time-consuming process. 

The importance of saving time

Ensuring coordination between the company and its stakeholders during the IPO process is equally important in terms of saving time. This is because company management has taken current market conditions into account when deciding to go public and has a specific timeline in mind. Whether the company will secure funding from the money market or the capital market is determined from the outset based on its economic forecasts. If it has chosen an IPO, it has a timeline and has made plans based on the funding it expects to secure according to that timeline.

A company seeking financing runs the risk of wasting time while navigating the workflow between these institutions. This lost time translates into additional costs for the company, especially given today’s inflationary environment. Moreover, because each financial statement has a limited shelf life—as I mentioned—these prolonged processes can often lead to a vicious cycle. For example, if the company’s financial statements are vulnerable to fluctuations in exchange rates or interest rates, an initial public offering (IPO) may become impossible.

Responsibility must be shared

Looking at the current numbers of stakeholders in the process, there are 49 brokerage firms with broad authorization and 112 independent audit firms authorized to operate in the capital markets. It is difficult to estimate the number of firms that will provide legal opinions due to differences in specialization. 

However, despite these figures, the number of partner institutions involved in initial public offerings over the past three years is so small that it can be counted on the fingers of two hands.

Despite this quantitative diversity in the capital markets, a significant portion of the institutions involved in initial public offerings (IPOs) face a heavy workload. This is because these institutions, having gained experience in IPOs in recent years, have inevitably become the go-to references in the market. As a natural consequence, the imbalance between supply and demand among stakeholders is driving up the fees charged by these institutions, and at times, this situation can push the costs of an IPO to high levels for companies.

Therefore, I believe it is important to ensure comprehensive communication and cooperation among all stakeholders. Stakeholders can make concrete proposals to ensure a more equitable distribution of the Capital Markets Board’s (SPK) responsibilities—which currently entail a significant workload—or request regulatory changes to ensure that existing responsibilities are distributed more equitably among them. Indeed, just as in any market, a healthy competitive environment in capital markets would not only reduce IPO costs for companies but also alleviate the burden on sector stakeholders by allowing those with heavy workloads to delegate their responsibilities, in my view.

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