For a growing Malaysian company, the idea of a US listing can be attractive.
Access to international capital markets can potentially broaden the investor base, increase visibility and provide a different platform for growth.
But an IPO is not simply a decision to list shares on an exchange.
It is a transformation of the business itself.
A company that has operated successfully as a private Sdn Bhd may discover that the requirements of a public market are very different from what it has experienced before.
For a foreign company pursuing a US registration statement using Form F-1, the preparation needs to begin well before the filing.
Start with the financial statements
The financial statements are one of the most important components of the IPO process.
This sounds obvious, but many businesses underestimate the amount of work involved in bringing historical financial information to a standard suitable for the capital markets.
The company needs to consider matters such as:
- Applicable financial reporting requirements
- Historical financial statements
- Group restructuring and acquisitions
- Revenue recognition
- Related party transactions
- Consolidation
- Foreign currency matters
- Significant accounting estimates
- Tax positions
- Subsequent events
- Supporting documentation
An IPO process tends to expose weaknesses that may have been manageable while the company was privately held.
The numbers need to tell one story
A strong IPO process requires more than technically correct financial statements.
The financial statements, management discussion, business description and investor presentation should all describe the same business.
If management says the company is expanding rapidly in a particular market, the financial information should provide evidence of that growth.
If a particular business segment is described as strategically important, management should understand its revenue, margins, working capital requirements and risks.
The IPO process effectively forces management to understand its own business at a much deeper level.
Internal controls become more important
A private company may sometimes depend heavily on a small number of individuals.
The founder approves payments.
The finance director knows the major customers.
The accounts manager understands the entire accounting system.
Everyone knows what is happening because everyone works in the same office.
That can work reasonably well at a certain stage of growth.
It becomes much harder to rely on when the organisation becomes larger and external investors are involved.
An IPO readiness exercise should therefore examine the company’s internal controls, financial close process, segregation of duties, approval processes and documentation.
The objective is not to create paperwork for its own sake.
The objective is to make the business less dependent on individual memory and more dependent on repeatable processes.
Related party transactions deserve attention
Many founder-led businesses have a significant number of related party transactions.
These may include shareholder loans, director balances, transactions with companies owned by directors, management charges, property arrangements and other connected transactions.
These arrangements may be commercially legitimate.
The issue is whether they are properly documented, accounted for and disclosed.
A transaction that was considered normal when the company had five shareholders may receive much more scrutiny when thousands of external investors are involved.
PCAOB considerations should be addressed early
For companies considering a US listing, the audit and reporting requirements need to be considered from the beginning.
The company should understand the relevant expectations surrounding its auditors, financial statements and reporting process, including any applicable PCAOB requirements.
This is one reason why IPO preparation should not be left until the investment bank starts asking for documents.
The earlier the finance and audit teams understand the intended listing pathway, the easier it is to identify gaps.
A practical IPO readiness checklist
Before moving too far into the process, management should ask:
- Financial reporting
- Are the historical financial statements prepared to the required standard?
- Accounting policies
- Are significant accounting treatments documented and consistently applied?
- Internal controls
- Can the finance team close the accounts reliably and on schedule?
- Related parties
- Have all related party relationships and transactions been identified?
- Tax
- Are material tax positions understood and supportable?
- Governance
- Are the board, committees and decision-making processes appropriate for a public company?
- Management information
- Can management produce reliable financial information quickly?
- Business narrative
- Does the story presented to investors agree with the underlying numbers?
- People
- Does the finance team have the experience and capacity required for life as a listed company?
IPO readiness is really business readiness
One of the biggest misconceptions about an IPO is that the objective is to prepare documents for listing.
The deeper objective is to prepare the business to operate under public market scrutiny.
That means reliable numbers, disciplined controls, clear governance and management that understands its own business in detail.
The listing itself may be the visible milestone.
The real preparation happens much earlier.
If a company wants to become a listed group, it should start behaving like one before it becomes one.
Source: US Securities and Exchange Commission, Division of Corporation Finance, international business rules, regulations and forms.