What Should You Know Before Going Public?

What are sell-side analysts and what do they do? What are the key pieces of information to know before taking your company public? We break down the basics.

You’ve put in the work to build your private business, and now it’s ready to scale. One of the potential next steps to keep up with your growth goals might be a public listing. “Going public” allows many companies to more easily raise capital to maximize their growth potential.  

As you start down the path of going public and prepare to navigate this next chapter, you’ll quickly learn that there are extensive new rules, requirements, and processes specific to public companies that you are now responsible for managing.

So, what should you know first?

One of the first steps is understanding that the banking partner (or partners) that you select to help you enter the public markets will be extremely influential to your company’s future. We can’t emphasize this enough. An often overlooked aspect of that influence is that the banking partners you choose will strongly impact the sell-side analyst coverage you secure post-IPO.

This consideration is one of the key reasons why it can be beneficial to bring in an investor relations advisor earlier rather than later in the process. Working with the right team, you can better assess and ultimately select the most appropriate banking partner for your company. Among other considerations, this decision directly impacts your network of sell-side analysts, a major determinant for your success as a public company. Given the high stakes nature of these decisions and their long-term consequences, it is imperative that you give it the proper time and attention needed to be done right.

What do sell-side analysts do?

Traditional investment banks offer a variety of services outside of just helping to raise capital. Another major division at many of these firms is a research function, generally referred to by many investment professionals as the “sell-side.” By law, research is kept separate from investment banking (through compliance) to allow for unbiased company coverage, i.e., uninfluenced by investment banking dollars. Typically, sell-side analysts share their research findings, complete with financial estimates and stock price targets, with investors who are clients of the investment bank. If investors like what they hear, they may decide to buy stock in your company, and they’ll likely make those purchases through the sales and trading desks of the investment bank, hence the “sell-side” moniker.

For emerging public companies, sell-side analysts can serve as a much-needed microphone for the company’s story. Each sell-side analyst has their own areas of expertise and audience, and, therefore, each presents their reports to a potentially different group of investors depending on their sector focus and other considerations. Finding a well-matched sell-side analyst can help your emerging company spread its story to an expanded network of investors within your industry and market cap range. This kind of support is crucial for any emerging public company.  

While banking and research services are separated, oftentimes your banking partners will work with their compliance teams to make introductions and secure relationships with their firm’s sell-side analysts. In many cases, selecting an investment banking partner also means selecting your analyst as well.

How do you meet the right sell-side analysts for your company?

Because sell-side analyst coverage is so impactful to your profile as a public company, meeting the right analysts will be one of the more important exercises you conduct on your IPO path. An experienced and well-connected investor relations team can identify and connect you with the appropriate sell-side analysts that have experience working with companies at your current stage of development and in your industry.

Your investor relations team will be interfacing with investment bankers and sell-side analysts on a daily basis, so they should have a strong understanding of where each group fits within the broader ecosystem. Furthermore, they have the relationships to broker introductions and ensure you’re meeting with the right people.

From the IR seat, all too often we encounter scenarios where companies partner with investment banks and sell-side analysts that aren’t the right fit. These mismatches can be due to a variety of factors. Perhaps the management team is insistent on working with a name brand, bulge-bracket bank because they feel more familiar or trustworthy. Or maybe the bank has a strong track record, just not in your industry. These distinctions matter, and if you haven’t gone through this process before, it can be easy to make a misstep.  

Getting this match wrong can mean exiting your IPO without the proper support a new issuer needs to thrive in the public market, including aftermarket support from your banker(s), strong research coverage from your analysts(s), and new investor interest.

Working with an experienced investor relations team that knows today’s market landscape and how to match those dynamics to meet your unique needs can help your company avoid some of these pitfalls.

Questions about going public? We’re here to help.

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