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Preparing to go public: tips for navigating the winding road to listing

Working for a business that is ambitious and fast-growing is an exciting employee proposition. Being on the IPO track signals the potential for greater investment and scalability, market profile and reward. It is an experience many employees and senior executives wish to be part of. However, the road to listing can be a winding one, with market volatility often making timelines uncertain.

HR teams play a key role in maintaining momentum and motivation as companies move towards an IPO, ensuring successful delivery of the IPO and driving continued success post-listing.

Here are four tips for HR teams to consider when contemplating an IPO.

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1. Reflect on what you could do to reduce the company’s risk factors

As part of the listing process, companies need to highlight to potential investors the risks that could impact the future success of the business. Savvy HR teams identify and minimise HR risks in the run-up to IPO so that known HR risks fall away and don’t need to be highlighted, making the company a more attractive investment.

This might, for example, involve fixing issues that have arisen due to the company previously focusing on hyper-growth rather than business protection.

The risk factors relevant to each business are different, but questions to ask might include: Are all key executives subject to appropriate notice periods and restrictive covenants that should be enforceable (i.e. standard best-practice contracts)? Is the company’s intellectual property protected? If pay schemes are designed to pay-out on listing will this give rise to a retention issue?


2. Audit your arrangements to manage any expectation gap

Many employees expect an IPO to result in an immediate and significant pay-day, but this is not always the reality. To avoid disappointment and detriment to employee relations, audit your arrangements carefully so all parties are clear on exactly what an IPO will mean.

Example questions might include: Do incentive plans have a pay-out trigger on an IPO of any size or shape? If plans are intended to be tax advantaged, does the structure and operation of the plan stand up to scrutiny? Will any post-IPO lock-up or shareholding requirements mean employees can’t realise value immediately? Have any verbal promises been made that haven’t been formally implemented?


3. Educate colleagues on what life after listing will look like

With so much focus being on the IPO event itself, the need to prepare employees for what life in the future will be like is often forgotten. Listing can have a significant impact on a company’s culture.

It is an event that requires careful change management like any other. Where previously certain individuals (e.g. founders) may have been able to quickly agree things, post-listing governance processes may drive consistency but decrease pace.

As a private company, senior employees could be remunerated in any way, but post-listing binding remuneration policies, investor expectations and disclosure requirements may mean certain offerings will be discontinued or standardised.

To maintain corporate identity and ‘stickiness’, it is important employees understand how and why certain things need to, and will, change prior to any IPO occurring.


4. Be prepared to pivot

Despite best efforts, sometimes IPO plans go awry. The IPO market might fall away, a fantastic trade sale opportunity might arise, a new private funding might be identified, or plans might just be paused. It is important that reward arrangements don’t incentivise executives and employees to pursue an IPO at all costs – and there shouldn’t be disincentive to do what is right for the business.  

If incentives are IPO/exit-focused, consider whether interim liquidity opportunities should be offered so that strong contribution and hard work is recognised in the short to medium term, whatever the outcome.

Cara Hegarty is partner in the employment and incentives team at Linklaters