April 12, 2020

Congratulations, you are a public company… Now what? (Part 2)

Part 2 – Developing into an exceptional public company

 

In Part 1 of our blogs we looked at the structure and the functions of the Corporate Leadership and Board of Directors and we emphasized the need for additional new requirements incumbent on the company and new qualities and capabilities the company must develop. With that background in mind, here are some comments and recommendations regarding those new dimensions to be addressed:

• Build a Strong “Financial Engine”– As a publicly traded company, you will have to publicly report detailed financial metrics (i.e. Balance Sheet, Income Statement and Cash Flow) every quarter. For investors to have a positive view of the business, they must see that the “financial engine” of the business is running appropriately. Depending upon the growth status of the company, the industry it operates in and other externalities, the exact parameters of “running appropriately” will vary dramatically. Rapidly growing companies in vibrant new business areas will be expected to expend resources on capturing market share, whereas slower growing companies in more traditional business areas will be expected to deliver strong positive cash flows. Recalling that investors invest for a single reason i.e. to see the value of their investment grow, the key is to understand what investors expect in order to have confidence that value growth will be the ultimate outcome. Additionally, it is important to maintain an appropriately conservative financial position, especially with respect to the Balance Sheet, for those inevitable times when the business will experience a slowdown. Further, a key element of the company’s “financial engine” will be the development of a solid, reliable and accurate financial reporting system. Nothing undermines investor confidence in a business faster than financial reporting missteps and restatements.                                                                    

• Develop a Robust, Well-articulated Strategy– Today, all businesses operate in an ever changing and dynamic environment. Today’s product or service can be eclipsed by new technology, a company’s customer base can suffer significant upset or change, or more positively, attractive M&A opportunities can emerge or new market avenues can be developed. And the impact of geopolitical events, whether positive or negative, must always be considered. This reality demands that a company have a sound strategy that addresses the so-called “SWOT”s… Strengths,Weaknesses, Opportunities and Threats and that strategy must be articulated in a way that clearly communicates the steps to be taken, the objectives to be met and why the business will enjoy continued success. Having a well developed strategy at top of mind will guide the company’s management in making important decisions and will be essential in communicating effectively with the company’s investor community.

• Employ a “Best of Breed” Professional Support Team– Successfully operating a public company requires specialized competencies and knowledge in a variety areas such as legal, accounting, public relations, advertising, investor relations and the like. This is not a time to “go cheap”; recruit and hire the best professional support services that can be found and that are affordable. Highly competent and deeply experienced support team members will provide the best advice to the company and will help the company avoid expensive errors and potentially fatal missteps.

• Create an Effective Capital Market Messaging Capability–The major US stock exchanges, the NYSE and the NASDAQ, host over 5,000 companies that are all vying for stock analyst, investment fund manager and investor interest. In order to garner such interest, a company must have an effective capital market messaging capability that includes regular press releases, quarterly conference calls and informational “road shows”. Using these mechanisms, a company can communicate its past accomplishments and its plans and strategies for continued success. Attaining a high level of capital market awareness is central to maintaining an active market in the company’s shares to insure adequate float and market capitalization. This can be particularly important if the company is suffering from a “down” phase for some reason; a communications vacuum will result in an assumption of the worst. A key element of a capital market communications program will be the assistance provided by investor relations consultants and messaging experts.

• Fully Understand and Comply with All Regulatory Mandates– In addition to the typical regulations that apply to all businesses, there are a number of regulations mandated by both government bodies and exchanges that specifically pertain to public companies. Further, there are a number of areas in which public companies must have formal, published policies and procedures. It is incumbent on the company to be aware of all these regulatory mandates and to comply with them fully and completely. An essential task of the company’s legal advisors is to guide the company in complying with these regulations and mandates. This issue can be further complicated as the company begins operations in differing legal jurisdictions.

Hopefully, these comments provide newly public companies with some useful guidance for navigating their “new life” in the public company environment. The benefits of being a public company are many, however along with those advantages come some new challenges and requirements. The team members at GigCapital possess a deep level of experience in all these matters, both from the perspective of acting as public company Board members and as formerly holding CEO and other C-suite positions in operating companies.. In executing a business combination with GigCapital, the partner company has immediate access to this invaluable experience as members of the GigCapital team join the Board of the newly combined, now public, company. This experience and knowledge provides nuanced understanding of the issues involved, the new skill sets needed, specific recommendations on establishing the formal processes needed and ready access to a network of consulting and legal resources.