The markers for a successful IPO have changed

In 2021, IPOs boomed, setting records. But in the last three months of 2023, no IPO listings occurred, amid looming fears of a recession.

This is understandable, as the harsh economic environment of recent years meant many businesses put a greater focus on improving tight margins over more traditional routes to growth and profitability. 

However, we are starting to see some green shoots of IPO activity emerge. The UK government is planning significant revisions to the listing rulebook and after years of speculation about potential listings from some of the UK’s biggest brands – including Monzo, Brewdog, and Starling – 2024 appears to be the year we may finally see these materialise. 

But why now, and how can businesses be sure they are ready? 

A favourable market   

After the turbulence of the pandemic, the global economy is in a phase of fragile but promising recovery. Although the economy is far from racing ahead, the steady limp back to stability is encouraging an increasingly optimistic attitude, characterised by growth prospects and renewed investor confidence.

This positivity is a cornerstone for companies looking to go public, with investors actively seeking new opportunities to capitalise on this period of economic optimism.   

This same optimism is evident in our latest research, showing that IPOs and mergers and acquisitions are one of the top priorities for UK finance leaders in 2024 (according to 34 per cent of those surveyed), surpassing investments in artificial intelligence (33 per cent) and efforts to become more purpose-driven and sustainable (31 per cent).

Though businesses find themselves in a markedly different world, the key indicators for IPO readiness have changed.

Determining IPO readiness   

As we approach the midpoint of the decade, the global economy can so far be characterised by fundamental, structural change. There are now huge pressures on businesses’ margins and operating models, added complexity and fragility in their supply chains, and increasing risk and compliance issues.

Ultimately, traditional technology approaches and human scale processes are increasingly unable to keep up with the pace of change. 

As a result, companies preparing for an IPO must move beyond mere survival and instead explore and adopt strategies to thrive in this complex and competitive economic landscape.

Growth at all costs may have been the priority for past IPOs, and the clearest indicator that a business was ready, but this is no longer the case.  

Potential IPO candidates must be able to demonstrate how they can navigate challenges such as market volatility.

Instead, the markers of an IPO-ready business are those that demonstrate how they have meticulously assessed and analysed their operations, identified inefficiencies, and implemented strategic measures to enhance productivity and reduce costs.

Growth is still important of course, but not without firm foundations that can withstand inevitable turbulence. 

Proving effective financial management is now critical to any IPO. This has been an essential skill over the past few years and has enabled many businesses to reassess the way they operate on a fundamental level.

Strong balance sheets, for example, are now a major indicator of IPO readiness.

Instead of appearing healthy due to unprecedented growth, the focus is now on reducing debt and improving cash flow management to add resilience and agility.  

In addition, many businesses have consolidated supply chains and negotiated favourable terms with vendors, removing inefficiencies that may have built up over years, effectively resetting operations into a position of strength.

Businesses that have learnt from lessons like these, and made important changes, will be much more appealing to potential investors.  

AI clearly has a role to play too. The way businesses harness their potential to improve the way they operate and to fuel growth is another marker of IPO readiness. Investors want to see how businesses are adapting to AI and how they are adopting it.  

Our research shows that UK finance leaders are making good progress, using AI across a range of areas to cut costs and increase productivity, such as through strategic sourcing (28 per cent), AP automation (27 per cent), procurement (27 per cent) and supply chain design and planning (22 per cent).

In addition, 42 per cent of UK businesses are planning to drive growth by investing in AI technologies this year. 

However, attracting investors requires more than just strong financials; it also demands transparency and good governance. Companies considering going public will already have robust end-to-end systems in place to provide clear, accurate financial disclosures, which is not only good practice but fosters trust with investors.   

Positioned for success  

Effective planning, strong brand presence and strategic market positioning can significantly enhance a company's appeal.

However, potential IPO candidates must be able to demonstrate how they can navigate challenges such as market volatility, which can impact stock prices and investor sentiment, and regulatory hurdles in different markets, which can be complex.  

An IPO is a complicated, time-consuming process for many businesses, and one of their largest milestones. It requires meticulous preparation and a clear strategy to ensure a successful and smooth transition.

Companies that have used the waves of challenges to successfully address issues around efficiency, financial health, and strategic growth will find themselves already well-positioned to capitalise on this moment.   

Ultimately, as long as this trend of cautious optimism continues, the small but encouraging move towards successful IPOs is also likely to continue, offering exciting opportunities for both companies and investors. 

Paul Maguire is managing director – APAC and EMEA at Coupa