There Are Ways to “Prepare” for an Initial Public Offering

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

• Ali Walked

The “IPO frenzy” we’ve been discussing frequently lately has entered a lull following the Capital Markets Board’s (SPK) tightening of criteria at the start of the year and the introduction of inflation accounting. At a time when everyone needs financing, it is also necessary to address the mounting 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 stakeholders manage the process up to the point of approval by the public authority. These stakeholders include independent audit firms, brokerage firms, and legal counsel. 

The initial public offering (IPO) 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 great deal of discipline.

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

Once the independent audit is completed, the brokerage firm reviews and analyzes the audit reports and prepares the 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 (SPK) for review by an SPK expert. The SPK 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 initial public offering (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. The question of whether to raise funds from the money market or the capital market is determined from the outset based on their economic forecasts. If they have chosen an IPO, they have a timeline and have made plans based on the funding they expect to secure in accordance with 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. In fact, because each financial statement has a limited shelf life—as I mentioned—and these processes can be protracted, the company often finds itself caught in a vicious cycle. For example, if the company’s financial statements are vulnerable to exchange rate and interest rate fluctuations, an initial public offering (IPO) may not even be feasible.

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 organizations that will provide legal opinions due to differences in their areas of 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, which have 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 responsibilities of the Capital Markets Board (SPK), which already has a very heavy workload, or they can request regulations to ensure that existing responsibilities are distributed more equitably among them. Indeed, just as in any market, a healthy competitive environment in the capital markets will not only reduce the costs of initial public offerings (IPOs) for companies but also, I believe, alleviate the burden on industry stakeholders by allowing those with heavy workloads to delegate their responsibilities.

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