There is seldom an advanced notice when a private company decides to go public. And this is partly because to the SEC’s requirements in relation to official filings of notices as well as the prospectus. The radio silence may also be simply because going public is a huge news and may put the company under heavy scrutiny. The company usually finds it easier to make preparations when there is a relative anonymity for themselves.
In this article, we’ll talk about the signs you can take from a private company that plans to go public soon or in the future.
Under the Sarbanes-Oxley Act of 2002 (SOX), the public companies on US stock exchanges must meet and maintain certain standards in the management of the corporation.
These standards involve having an external board of directors, which is tasked to develop and assess an effective set of internal controls over the financial management of the company.
The board is also tasked to create a formal process where employees and others can have direct access to the audit committee to report on any kind of illegal activities, along with those that violate the company’s policy.
If there are sudden and unannounced series of new policies and procedures, it might be a sign that the company is moving towards an initial public offering (IPO).
Public companies and those that are poise to go public usually have their annual and quarterly financial statements dissected and scrutinized by investors and analysts.
Private companies that plan to go public usually assess their own financial statements and take any write-offs that they can under the GAAP. They do this in order to provide a better income statement in the future.
Changes in Senior Management
Once the company decides or plans on going public, it needs to think about how qualified its current management is and whether the management needs some form of purging.
To appeal to investors, a public company is required to have officers and managers who have experience and who have a track record of leading companies into the path of high profits.
If the company suddenly kicks off a full-scale overhaul in the upper management of the company, then it may be hinting at improving its public image before even going public.
Selling of Non-Core Business
There are companies that sometimes spring up from scratch and they usually have some business units that are linked to it which are ancillary to the core business segment, or the main business purpose.
For example, a company that primarily sells office supplies may have another business segment that is about marketing. The ancillary or secondary business does not connect directly to the core or primary business.
If the company is aiming at going public, the prospectus is expected to and must show a clear business direction. If you see that the company is dropping its non-core operations or business segments, you may consider that as a sign that the company is trying to get lean and is preparing for a public share offering.
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