Pre-IPO preparation for equity compensation: You can never start too soon

It’s never too soon to begin looking into the process of becoming a publicly traded company and you can never have too much help as you navigate that journey.

Those were among the key takeaway messages from a recent J.P. Morgan Workplace Solutions webinar on the initial public offering (IPO) preparation process, presented in conjunction with our partners leading international audit, tax, advisory and consulting specialists Forvis Mazars.

The conversation between our own John Bagdonas, Business Development, and Joe Notaro, Accounting Advisory Services with Forvis Mazars, saw them take a deep dive into a number of relevant topics, including financial reporting, equity compensation and internal controls as private companies move towards going public.

An optimistic outlook

At the outset, Joe sounded an upbeat note on the likely trajectory of the IPO market in the coming period. Acknowledging that activity cooled noticeably after 2022, with many companies and investors going into wait-and-see mode in response to numerous concerns, e.g., higher interest rates, recession fears, inflation and geopolitical uncertainty, he went on to note that there had been an uptick in activity last year, albeit largely industry specific in nature, with healthcare and technology flotations accounting for the bulk of the action. However, with the US presidential election now in the rearview mirror, Joe believes that IPO activity is set to intensify.

“There is reason to be optimistic. It’s been a solid start to the year, the election is now behind us and the general consensus is that there is a pro-business sentiment taking over with anticipated policy changes likely to create favorable market conditions. That being the case, there may be reason to be positive that the IPO market will bounce back in 2025 and continue to be strong in 2026,” he said.

Joe added that his assessment was based partly on there being a lengthy list of private companies at varying levels of preparedness waiting for the right moment to formally proceed with their IPO process.

“There are companies who’ve been waiting for market conditions to improve but have otherwise been ready to go for the last two years. Meanwhile, there are also a lot of companies just starting to think about going public, realizing realistically that they’re still 18 to 24 months out,” he said.

It’s never too soon to get started

No matter what the focus was at any given moment, both Joe and John frequently reiterated two key messages – it’s never too soon to begin the process and don’t underestimate the need to seek out experienced third-party partners who know what is required at every step along the way.

Joe emphasized throughout the importance of companies recognizing that 18 to 24 months is a realistic timeframe and that they should plan accordingly.

“There are companies who decide to go public and get there six months later. It can done, but are they going to be able to do all the best practices we list here? Absolutely not. There just isn’t going to be enough time. The last thing you want is to have to cut your celebration short and implement a new ERP (Enterprise Resource Planning) or address a handful of material weaknesses that your external auditor identified during the process. That is why we recommend you start the process as early as possible,” he said.

IPO readiness gap assessment

Once a company makes the definitive decision to go public one of the first steps undertaken should be to perform an IPO readiness gap assessment. Joe explained that this will typically be done by an outside firm with experience in helping private companies go public. The idea is that the assessment should drill down into the company’s processes, systems and people, leaving no stone unturned.

“The end product will be an in-depth report that will go through findings, recommendations and action items designed to help educate the C-suite and the board on the gaps in your company. The volume of action items is going to vary depending on the organization. If you’re a startup trying to go public, your list is probably going to be a lot longer than if you were a company that was public, went private and is going public again,” he said.

Joe stressed that the readiness assessment represents just one of the many moments along the timeline when experienced third-party support will be vital. Among those external partners will be, for example:
• Investment bankers
• Underwriters
• US Securities and Exchange Commission (SEC) lawyers
• Public company Accounting Oversight Board (PCAOB) auditors

“Engaging with experts who know the process, know the industry, and have done this before, is going to be critical,” he said.

Equity compensation preparedness

Meanwhile, John focused on employee equity compensation plan administration and how going public can be a practical moment to revisit how awards, vesting, exercise and forfeitures are tracked and maintained. Specifically, he noted that many startups and early-stage companies handle equity plan administration internally, using spreadsheets or cap table management applications, but that over time this can become impractical, as plans become more complex and financial reporting obligations increasingly important.

“As you move closer to that IPO event, the pain starts to increase in terms of what you need to do, whether from a reporting standpoint or in managing that equity plan,” he said.

On financial reporting and IPO, John cited a number of reasons why companies should seek to adopt a solution that will enable them handle their equity compensation and its administration as effectively as possible, including:
• Investor confidence
• Regulatory requirements
• Performance tracking
• Risk management
• Stakeholder communication

“The less things that can go wrong, particularly from a risk management standpoint, the better. It’s very important to get into that cadence of reporting, to have an application or partner or supplier that can help you with that, the tracking, management and performance of awards,” he said.

From John’s perspective, that means looking to partner with a third-party provider with an established track record of working with companies in the pre-IPO period and beyond.

“It is important to go with an experienced partner that’s done it before. You really want to choose a platform or partner that is truly compliant with all requirements and can provide integrated reporting,” he said.

John also emphasized the importance of adopting a long-term view when choosing a provider.

“If you’re a high growth company, or have the potential to grow significantly through the IPO and beyond, you want to make sure that you have a solution that’s scalable. Graduating onto a new platform is a significant undertaking, so you don’t want to have to do that multiple times,” he said.

This joint webinar – The IPO preparation process: The financial reporting, equity compensation and internal controls roadmap – is available for on-demand viewing here.

What next?

Your equity compensation arrangements will by necessity change as you move from being a private to a public company. Ensuring that you stay on top of all associated issues can be incredibly demanding and it’s essential that you’re prepared.

Workplace Solutions provides businesses of all sizes with an all-in-one equity compensation management solution. We handle all the administration so you have more time to focus on your company’s journey. Get in touch today to find out how we can assist you.

The information provided in this blog is intended for informational and educational purposes only; it is not intended as an offer for any specific product or service. Forvis Mazars is not affiliated with JPMorgan Chase & Co. The presentation contains the views of a J.P. Morgan employee, which may differ from the views of J.P. Morgan Chase & Co., its affiliates and employees. The views and strategies described may not be appropriate for everyone.  Certain information was obtained from sources we believe are reliable, but we cannot verify the accuracy of the content and we accept no responsibility for any direct or consequential losses arising from its use. You should carefully consider your needs and objectives before making any decisions. For specific guidance on how this information should be applied to your situation, you should consult a qualified professional.