For every company hoping to go public, a crucial part of IPO preparation is assembling the group of employees, board members, outside professionals and advisors who are needed for the IPO journey and life as a public company. The principal members of the IPO team are highlighted below. In assembling this team, companies should always remember that there is no substitute for experience when the stakes are high and time is short—hallmarks of every IPO.

MANAGEMENT AND EMPLOYEES

The CEO and CFO are essential to the success of the company’s IPO. If the incumbents do not possess the combination of experience, knowledge, communications skills, vision, energy and integrity needed to lead the company through the IPO process, woo investors on the road show and tend to public company obligations after the closing—all while managing the company’s operations—the board will need to consider deferring the IPO or changing the company’s leadership. For example, it is not unusual for a company going public to seek a more seasoned CFO, even if the existing CFO has been adequate for the company’s needs while it was privately held.

On top of normal hiring to meet its growing business needs, most companies add other specific capabilities as part of their IPO preparations:

• Controller: An IPO company should have a controller on board before completing the IPO, and preferably six to 12 months before the organizational meeting—particularly if the CFO has more of a finance than an accounting background. The controller should be well-grounded in accounting and public company reporting requirements.
• Finance and Accounting Staff: Additional finance and accounting employees will be needed to assist with various public company responsibilities, including preparation for Section 404 of the Sarbanes-Oxley Act and public reporting matters. Generally, some new finance and accounting employees—such as a director of external reporting—are hired during the IPO process, and others are added as the company’s needs develop over time.
• General Counsel: A general counsel can make significant contributions to the IPO process, particularly if hired at least six to 12 months before the organizational meeting—in time to become familiar with the company’s business, contracts and corporate affairs, and to participate with outside company counsel in public company preparations.
• Investor Relations Personnel: Most private companies rely on the CEO or CFO to handle any stockholder relations matters that come up. Following an IPO, additional resources (internal and/or external) must be devoted to investor relations. Before the IPO is closed, the company should have plans in place to fill this function.
• Stock Plan Administrator: An IPO company must hire a qualified transfer agent to handle stock transfers and record keeping. Although some stock plan functions can be outsourced, most public companies also need an internal stock plan administrator, who usually resides within the human resources or finance group.
• Internal Auditor: Although not required by SEC rules, an internal audit function is required by NYSE listing requirements, subject to a one-year transition period for IPO companies. Nasdaq does not currently require its listed companies to establish and maintain an internal audit function.

BOARD OF DIRECTORS

An IPO presents both a need and an opportunity to reset a company’s board of directors. As IPO planning progresses, the company should evaluate the post-IPO composition of its board and board committees for several reasons:

• Independence Requirements: The board will need to satisfy independence standards under SEC and applicable stock exchange rules, including the enhanced standards for membership on the audit and compensation committees.
• Audit Committee Financial Expert: The audit committee should have at least one “audit committee financial expert,” as defined by SEC and applicable stock exchange rules.
• Compensation Committee Considerations: There is a securities law advantage if each compensation committee member qualifies as a “non-employee director” for purposes of Section 16 of the Exchange Act of 1934, as amended.
• Public Company Experience: It may be necessary or desirable to add board members with public company experience, including directors with relevant industry experience or subject matter expertise.
• Allocation of Committee Duties: Additional independent directors may be useful to share the burden of the board’s three principal committees—generally, at least five independent directors are needed to enable a reasonable allocation of committee duties.
• Departure of VC and PE Directors: Directors appointed by venture capital or private equity investors may plan to resign shortly before the IPO or after the IPO lockup period ends and their funds’ shareholdings are distributed.

Although phase-in rules apply to the director independence standards and there is no technical deadline for most of the other requirements summarized above, the board should ideally begin discussing potential changes in board composition six to 12 months before the IPO. Companies are often surprised by how challenging it can be to recruit new directors. This task has increased in difficulty due to a variety of factors, including more stringent independence requirements, the heavier workload now expected of directors, a perception of increased personal exposure to liability, and investor policies against director “over-boarding” (several major institutional investors will vote against a director if that director sits on more than four boards or, in the case of a director who is an executive officer, more than two boards).

COMPANY COUNSEL

Company counsel is a central player in the IPO working group. In selecting a law firm to serve as IPO counsel, a company should consider:

• IPO and Public Company Experience: Experience in handling IPOs and advising public companies on their ongoing reporting obligations, preferably for companies in the same or a similar industry, is essential.
• Issuer and Underwriter Experience: Both issuer and underwriter IPO experience is relevant, since an understanding of the priorities and expectations of underwriters will facilitate the offering process on the company’s side.
• Prior SEC Work Experience: Former SEC staff members within a firm can often draw on prior working knowledge to expedite the resolution of issues or identify the appropriate decision-maker within the SEC.
• Team Members: The company should assess the experience and capabilities of the individual lawyers who will handle the IPO, including the more junior lawyers on the team—the “second chair” on the offering may well be the company’s principal point of contact for many parts of the IPO process.
• Firm Capabilities: The firm’s full-service capabilities should be considered, as the company will inevitably have legal needs in a wide range of areas, both during and after the IPO process.

INDEPENDENT ACCOUNTANTS

Although IPO companies do not need to hire a “Big 4” or other national accounting firm to go public, a large majority do. The Big 4 plus the next three largest audit firms account for more than 90% of all US IPOs, for several reasons:

• SEC Experience: Every independent registered public accounting firm will be familiar with Regulation S-X, GAAP and PCAOB auditing standards, but national accounting firms can tap into a wellspring of institutional experience concerning the SEC and IPOs.
• Bench Strength: With large staffs in nearly every major metropolitan area in the United States, national accounting firms have the bandwidth to meet the demanding schedule of an IPO and can service the audit needs of companies with widely dispersed operations.
• Additional Services: National accounting firms offer a variety of tax and advisory services in addition to traditional audit services, often enabling companies to benefit from “one-stop shopping” globally (subject to limitations on non-audit services imposed by the Sarbanes-Oxley Act).
• Brand Name: Underwriters and investors often draw comfort from the inclusion of a national accounting firm audit opinion in an IPO prospectus. IPO candidates that are not using a national audit firm often switch to an audit firm with more IPO and public company experience. If a new audit firm is engaged, previously audited financial statements may need to be re-audited. To avoid potential offering delays, a switch in auditors generally should be made six to 12 months before beginning the IPO process. A change in auditor during the company’s two most recent fiscal years or any subsequent interim period must be disclosed in the registration statement for the IPO.

MANAGING UNDERWRITERS

The selection of managing underwriters—in particular, the lead managing underwriters—is one of the most important decisions the company will make as part of the IPO process. The following criteria are generally considered relevant in choosing from among competing investment banks:

• Track Record: An investment bank’s prior experience and success is arguably the most pertinent factor, and has three dimensions: overall track record, IPO experience and familiarity with the company’s industry.
• Team Members: The company should evaluate each underwriter’s entire team, including the investment banking personnel, research analysts, and equity capital markets and syndicate group.
• Commitment to the Company: The company should be sure that the managing underwriters it chooses are committed to the company and that the deal teams have sufficient capacity to devote to the company.
• Distribution Capabilities: The managing underwriters collectively must have sufficient distribution clout to sell the entire IPO and the ability to achieve the target mix of institutional, retail, domestic and international investors.
• Aftermarket Support: An IPO can quickly sour if an active trading market does not develop or the stock underperforms the market after closing, and securities litigation often follows a sudden drop in the stock price.
• Prestige: Perceptions of underwriter prestige are largely subjective and can vary across industries, but few directors or institutional investors would have difficulty identifying those potential managing underwriters they consider to be more (or less) prestigious than others.
• Economic Factors: If the company anticipates a large IPO and hopes to negotiate a discount below the generally prevailing 7% rate, the topic should be discussed when banks are competing for the engagement.
• Financial Strength: An investment banking firm’s financial resources will determine the amount of capital it can commit to aftermarket trading support and will affect its potential ability to make credit available to the company for acquisitions or other corporate purposes. 
• Other Capabilities: The company should assess each potential underwriter’s strengths in the areas of the company’s likely future needs, including follow-on public offerings, M&A engagements, and assistance in takeover defenses, investor relations and other capital markets matters. If the company contemplates a “dual-track” process, it should also consider the underwriter’s M&A capabilities and track record for this process.

UNDERWRITERS’ COUNSEL

The lead managing underwriters will select an outside law firm to serve as underwriters’ counsel. In addition to experience with IPOs and the company’s industry, familiarity with the company will make underwriters’ counsel more effective and contribute to a smoother offering process. Many law firms are qualified to act as underwriters’ counsel, and the underwriters will often give considerable weight to the company’s views on the choice of firm.

OTHER ADVISORS AND VENDORS

Companies going public regularly retain additional consultants and advisors, such as a compensation consultant, investor relations firm and accounting consultant. An IPO company also needs to line up several vendors as part of the IPO process, including a financial printer, transfer agent and virtual data room provider (typically the financial printer).