2020: the year of the IPO pandemic

How to prepare for the IPO?

The initial public offering (IPO) of shares of Petz, a retail chain of pet products, came out this month for no less than R$ 2.7 billion and created euphoria in the market. The classic photo of smiling executives crowded together and hitting the floor bell while being bombarded with rain of confetti has been replaced by a virtual version, quite bland – not letting us forget that these are times of pandemic and social distancing.

For the capital markets, the year of the pandemic is also the year of a flood of public offers in the market, with 42 requests filed so far with the CVM. If it continues at this speed, there are those who say that this year the number of IPOs will break the record achieved in 2007, when there were a total of 76 registered offers. Those who remember the madness that was 2007 will also remember that the window that year, although large for Brazilian parameters, was very short. 2008 came with the crisis of the North American housing bubble and, with it, the closing of the market. 13 years after the stock market boom in Brazil, many wonder – until when will the window be open this time?

It is true that this time we do not need to fear the arrival of a crisis because the boom is happening right in the middle of a pandemic: the Covid-19. Today we have the lowest interest rates in the country’s history, a dollar worth more than R$ 5.00 and the largest number of individual investors investing in assets traded on the stock exchange, which brings enormous liquidity and appetite to the national capital market. But the truth is that Bankers, lawyers, auditors, accountants and financial advisors are rushing to get the offers up before the window closes.

A successful initial public offering requires enormous effort on the side of the company and involves some fundamental initiatives that involve the engagement of the internal team and the hiring of a team of advisors capable of organizing, guiding and maintaining the team’s focus on the aspects relevant to the IPO.

As the saying goes, whoever arrives first drinks clean water, so the sooner the preparation for the IPO begins, the greater the chances of the company being able to get out during the desired “window”.

The Achilles heel of an issue is in the financial statements. The financial statements must be reviewed and prepared in accordance with CVM, IFRS, US GAAP and other reporting standards in the event of a listing outside of Brazil. Therefore, extensive work with the company’s independent auditors and adaptation of practices and procedures will be necessary so that the financial information to be presented at the IPO is appropriate and consistent, avoiding reservations by the auditors and other regulatory bodies and reducing the risk of disclosure of divergent or unclear information that may cause investors to misinterpret financial data contained in the public offering.

Corporate reorganizations and restructuring of internal management must be evaluated and implemented in such a way as to make it possible for the company to fit the conditions of the public offering. For example, the transformation of a limited liability company into a corporation and the drafting and adaptation of the bylaws to the corporate governance policies required by the CVM regulations and the market in which the company intends to list itself. Internal policies such as compliance, environmental, data protection, anti-corruption measures, investor relations, among others, must either be created or reviewed and improved.

Issues related to the incentives of the main executives of the company, such as Stock Options, bonuses, etc., must be duly formalized.

The main contracts and obligations of the company should be reviewed and the prior approvals necessary to complete the IPO mapped and addressed to avoid the early maturity of debts and contracts with suppliers. It is necessary to pay attention to deadlines stipulated in the contract, deadlines for summons and approval quorums.

Likewise, it is important to review all company licenses and authorizations and develop an action plan for obtaining, renewing or adapting licenses and authorizations from the competent public bodies, which usually have their own operating deadlines, often out of sync with the terms for going public.

In view of the above, there are several fronts and measures that must be observed for an IPO. Thus, having the assistance of advisors who can help the company to organize and work together with professionals who prepare the prospectus, reference form and other documents for presentation to the CVM and B3 (Stock Exchange) is an efficient solution to simplify the process and enable the main company executives to focus their energy on issues such as marketing, roadshow and bookbuilding, so that together they can write a successful story, even if wearing a mask and ringing the B3 bell virtually.

By Giovanna Paes Cruz and Raphael Pereira Arantes Pires, associates at Candido Martins
societario@candidomartins.com.br