Comment: How to float and not sink

After a prolonged hibernation, the retail IPO market is open for business. However, in the rush to list we may see as many rumoured IPOs sink without trace as actually float.

There’s no doubt 2014 will be the year of the retail IPO. Since the float of Conviviality Retail in July 2013, there has been a flurry of retailers announcing that they too are exploring the option of a public listing for their business.

This burgeoning excitement, and increasing market chatter has hints of a “me-too” scenario, pushing retailers to jump on the IPO bandwagon, when in fact it may only deliver the right results for certain businesses.

IPOs have many advantages: they can help owners realise their investment and provide the capital necessary to take the business to the next level.  However, the competition for shareholder interest is intense. A company has to prepare properly for an IPO to avoid the risk of a failed or poorly received listing, which could lead to reputational damage or turning off this particular investment tap.

When considering an IPO retailers need to understand what potential institutional shareholders are looking for, and honestly assess if their business can offer it. The preparation can be a once-in-a-lifetime experience that needs careful planning to mitigate the expense and consumption of management time. In addition to courting investors, management typically have to undertake a debt refinancing, oversee changes to their IT and accounting systems and ensuring reporting processes are up to the demands of a plc.

Retailers also must be aware of what life will be like after listing. Once listed, a company must communicate regularly with a broad range of stakeholders and be subject to far greater scrutiny. Almost overnight, issues such as risk management, corporate governance and sustainability may attain far greater importance, exposing potential skills gaps at the operational management level.

New shareholders’ objectives may also be at odds with those of the previous owners, causing tension at the board table and derailing long term strategy.

The sheer investment involved, and the consequences of a heavily rumoured but ultimately pulled float, means that owners and management must continually challenge themselves throughout the IPO process whether the decision to float is the most appropriate one.

For the right retail business that is sufficiently prepared an IPO has the potential to be transformational and can unlock capital and kick-start growth plans.

Tim Metzgen is director of KPMG Capital Advisory Group