February 2024

SGV thought leadership on pressing issues faced by chief executives in today’s economic landscape. Articles are published every Monday in the Economy section of the BusinessWorld newspaper.
26 February 2024 Marie Stephanie Tan-Hamed and Neil Paurom

How public-private partnerships drive sustainable growth

Public-private partnerships (PPPs) are powerful tools for driving economic progress, particularly in rapidly growing economies like the Philippines. To sustain this high-growth trajectory and achieve the economic goals embedded in AmBisyon Natin 2040, the government recognizes the significance of infrastructure development and the vital role of the private sector.According to the Public-Private Partnership Center, a PPP is a contractual agreement between the government and a private company targeted toward financing, constructing, operating, and maintaining infrastructure projects that traditionally fell under the public sector. The PPP model ensures that risks are optimally shared between parties, underscoring its cost-effectiveness and alignment with developmental objectives.PPP arrangements leverage the expertise and efficiency of the private sector in delivering public goods and services. This strategy, enshrined in the 1987 constitution and initially codified through the Build-Operate-Transfer (BOT) Law, has contributed to the robust infrastructure pipeline and positioned the country as one of the regional leaders in PPPs. This intersection between the private and public sector as engines for national development and economic growth was the focus of the SGV Knowledge Institute event last week, “Philippine Economic Outlook: Public and Private Partnerships as a Catalyst for Sustainable Growth.”PPPs are more than financial solutions for public ventures; they are catalysts that boost productivity and streamline processes for faster implementation and improved service delivery.THE ROLE OF THE MAHARLIKA INVESTMENT FUND (MIF)The Maharlika Investment Fund, established through Republic Act (RA) 11954, has as its main objective the stimulation of economic growth and social development while generating optimal returns.With its focus on balancing profits with societal benefits, the MIF has the potential to foster socio-economic integration. Acting as both a catalyst and magnet for Foreign Direct Investment, the MIF aims to achieve significant financial returns and facilitate national development. This fund provides additional flexibility for the government — with an option to finance infrastructure projects in sectors like green and blue projects, sustainable development, healthcare, road networks, water, energy, and telecommunications, thereby enhancing economic growth and creating more jobs.PPP PROGRESS IN ASEANThe Philippine PPP program has consistently drawn participation from local conglomerates, as they flock towards the large-scale infrastructure offerings of the government. However, there is much work to be done to establish the country’s infrastructure sector as a reliable investment destination for foreign capital. Despite this, there is an estimated $53.3 billion worth of PPPs under implementation, and another $48.4 billion in the pipeline. This underlines the scale and scope of private sector involvement in nation-building projects.Considering the limited fiscal space caused by the government’s much-needed response to COVID-19 pandemic, the country is currently focusing on key PPP projects to bridge the infrastructure gap and revitalize economic growth. Notable examples include the recently awarded and long-awaited rehabilitation and optimization of the Ninoy Aquino International Airport (NAIA) PPP, the Metro Manila Subway (MMS) Operations and Maintenance (O&M), and the North-South Commuter Rail (NSCR) O&M. The MMS O&M and NSCR O&M projects are expected to be submitted for approval within the year.Implementing PPPs used to involve navigating a complex legal framework, spanning various guidelines set by the BOT law, National Economic and Development Authority, the government-owned and -controlled corporation regulator, and ordinances set forth by local government units (LGUs). The recent enactment of RA 11966, or the PPP Code, aims to cure that by unifying and streamlining PPP development and implementation both at the national and local level.AREAS OF OPPORTUNITY FOR PPPsHealthcare. Healthcare is a prime sector where PPPs can facilitate growth. Given that out-of-pocket expenditure comprises nearly 45% of healthcare spending, there is a crucial need for more innovation. PPPs could play a pivotal role in attracting investments, enhancing the quality and accessibility of essential healthcare services. Healthcare PPPs in the pipeline include the University of the Philippines Philippine General Hospital Diliman and the Cagayan Valley Medical Center Hemodialysis Center.Education. PPPs could drive considerable advancements and elevate the country’s global standing in this crucial sector. For a country striving to improve its position in international educational rankings, private capital can become an indispensable tool in uplifting national education. According to the 2022 Program for International Student Assessment (PISA), the Philippines placed 77th out of 81 countries, necessitating the need for more investment. The Philippines has utilized PPPs through the PPP for School Infrastructure Projects (PSIP), where the Department of Education (DepEd) was able to construct additional classrooms to help reduce the classroom backlog. In 2012, SGV & Co./Ernst & Young Australia Infrastructure Advisory provided transaction advisory support for the development of PSIP 1.Energy. The PPP Code enables implementing agencies to enter into contracts on power generation and transmission, as well as projects relating to energy efficiency and conservation. This cooperation could lead to greater diversification of energy sources, boosts in renewable energy production, and advancements in energy-efficient technologies.Transportation. Transport infrastructure projects continue to be a key driver of overall economic growth. With government initiatives to improve connectivity, transport systems, and reduce traffic congestion in urban areas, the private sector can either participate in various projects in the pipeline of the Department of Transportation or submit their own unsolicited proposals. Two PPP projects being provided with project preparation support services are the Manila Bay-Pasig River-Laguna Lake Ferry System and the North Integrated Transport System.Water. Access to clean water and sanitation remains a challenge for a lot of our countrymen, especially in rural areas.  Water and sanitation PPPs can be a viable solution to address basic needs while promoting the sustainable use of water. One water PPP currently in the pipeline is the Bislig City Bulk Water Supply and Septage Project.IMPLEMENTATION CHALLENGESThe Philippines is no stranger to the implementation challenges hounding PPPs. As with any other innovation in policy, growing pains are always expected. The key therefore is ensuring that we absorb the learnings and insights from these real-world encounters.Financial constraints. Given the scale and gestation period of most infrastructure projects, securing adequate and sustained funding remains a major issue. Economic uncertainties can adversely impact budget allocations for ongoing projects and subsequently affect private sector confidence.Transparency and accountability. Maintaining transparency is critical to fostering trust. Ensuring accountability on both sides is crucial for the long-term success of PPP projects, and issues in this area can significantly impact the efficiency and effectiveness of PPPs.The successful execution of PPP initiatives depends on a robust regulatory environment and technical support from entities like the PPP Center, the lead agency for PPPs. Newer players, like the Maharlika Investment Corp., can stimulate project development and attract private-sector financing for sustainable development projects and further accelerate national growth.FISCAL POLICY DEVELOPMENTSAs mentioned earlier, one crucial fiscal policy development is the recent enactment of the Philippine PPP Code. The PPP Code unifies disparate legal frameworks, streamlines the approval process for projects, and safeguards public interest. It aims to address current challenges and encourages more PPPs by clarifying uncertainties and streamlining requirements.THE ECONOMIC TRANSFORMATION AGENDAThe journey to sustainable growth is underscored by strategic pivots against a changing world. The Philippine Development Report 2023 represents a transformational blueprint emphasizing digital transformation, improved connectivity, PPP maximization, and an enhanced role for LGUs in accelerating development.Building investor confidence is crucial for PPPs, not only for attracting investment but also for socioeconomic development. The Philippines must demonstrate its credibility by meeting obligations while promoting transparency, good governance, and trust. This provides an attractive investment climate and ensures the sustainable growth and effectiveness of PPPs.Driving sustainable growth in the Philippines involves the concerted efforts of public and private stakeholders. PPPs serve as powerful enablers in guiding the country toward economic security and long-term development. For executives, harnessing the potential of PPPs presents a unique opportunity to engage in nation-building while generating significant business growth. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Marie Stephanie C. Tan-Hamed is a Strategy and Transactions (SaT) partner and the PH Government and Public Sector leader of SGV & Co., and Neil Paurom is an associate director for Infrastructure Advisory at SGV & Co.

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19 February 2024 Kristopher S. Catalan and Patricia Jazmin D. Patricio

The IPO journey for family businesses

Taking a family business public through an Initial Public Offering (IPO) is a significant milestone that requires strategic planning and careful execution. The transition can unlock new opportunities for growth, but also brings challenges brought by increased scrutiny, regulatory requirements and stakeholder expectations.In an IPO, a private company becomes a publicly traded entity, offering its shares to the public through a stock exchange. This transition from private to public status is marked by the issuance of new equity shares to institutional and retail investors, expanding the company’s ownership base. This may not be appealing for some family businesses, as it may dilute the family’s ownership and even run the risk of losing control.Looking at it from a different perspective, an IPO lets family owners realize previously unmeasured value of their companies with the opportunity to cash in through secondary offer during the IPO or later on subject to lock-up restrictions. On the other hand, the public will now have a chance to invest in what it used to be a private company with hopes of future capital gains or dividend payouts. For the company going public, it is an important step in accessing significant long-term capital that can fund expansion programs or new strategic investments that bank creditors or private investors may not be able to provide.KNOWING WHEN TO DO THE IPOIn the 2023 EY Global IPO Trends Report, the ASEAN IPO market was generally challenging, with high inflation rates and elevated interest rates reducing IPO activities for most countries in ASEAN. In the Philippines, there were only three IPOs, all completed in the first half of 2023. Globally, moderating inflation rates and interest rate cuts could attract investors back to IPOs. Locally, a good number of IPO transactions are expected this year due to strong economic fundamentals, but the government and private sector remain wary of global and local headwinds which may undermine investor confidence.Company or sector specific conditions must be considered when going listed. For example, the Philippine Securities and Exchange Commission (SEC) requires a company to establish three years of profitable operations, i.e., at least P75 million of cumulative net income, excluding non-recurring items, for the latest three full fiscal years and a minimum net income of P50 million for the most recent year. Companies with established profitability and cash flows that are consistent with their equity story will generally generate good valuations.Up and coming sectors and economies with good outlooks, such as those in mining and minerals due to the global demand for raw materials for batteries of electric vehicles, or technology companies in South Korea due to advances in artificial intelligence (AI), have had good valuations recently. Growing interest in critical minerals such as lithium and nickel are heavily influenced by environmental, social and governance (ESG) factors which has lately been a focal point for benchmarking companies’ potential. These conditions are hard to predict and are often “one without the other,” making it key for companies to prepare early to move fast when the right time and conditions come into play.DEFINING CORPORATE IDENTITY WHILE BUILDING A LASTING LEGACYOften characterized by tradition and family values, family businesses may hesitate to go public. The business-as-usual attitude must cease as companies will need to revisit and upgrade certain aspects of their operations, talent, performance measurement, and even redefine strategies.That is not to say that the family legacy and tradition are lost during the transition to being a public company. Family businesses need to tread this line carefully to ensure that what made them thrive in the past can be part of their current business narrative while adopting new ways of working. Family businesses will need to start the IPO readiness assessment as early as possible to know what needs to change and when. From detailed elements such as the operating or accounting manual to complex business processes such as entity-wide risk management or investor relations, they must assess their level of maturity to know what, where and when help is needed.A readiness assessment also enables aspiring family businesses to determine current structures and policies (i.e., operating policies and processes, financial and management reporting, data, systems and technology, risk management, etc.) that need to evolve to be future-fit, while retaining the rich history that defines the identity of the family business.STRENGTHENING PEOPLE AND PREPARING THE NEXT GENERATIONFamily businesses must assess how capable their current management teams are in leading them to their desired future. A compelling equity story and strong financials are futile without captains who can steer the ships. Strengthening the management team can include hiring experienced professional managers who are equipped with expansive business networks to help the company grow and thrive as a listed entity. Companies may need to create new positions to help grow and sustain their businesses or manage risks in navigating regulatory complexities and complying with securities laws.Companies must identify family members who can retain key leadership positions in critical areas of the business and in the board, as well as a succession plan that enables NextGen family members to train early in the ways of the business. Based on the 2023 EY and University of St. Gallen Family Business Index, only 13 out of 179 board seats (7.3%) for 17 family enterprises in ASEAN were occupied by NextGen family members, with practically zero NextGen on the boards of the four Philippine companies included in the study.Family businesses have rich histories and backgrounds which are integral to a compelling equity story. Company history can demonstrate the readiness of the company to navigate the future while defining what the company represents. A compelling equity story should be able to narrate the humble origins of the business and where it wants to go in the future.OPTIMIZING INFORMATION WITH THE RIGHT INFRASTRUCTURE AND TEAMOften, some IPO aspirants inadequately prepare their financial, management and tax reporting, with outdated legacy systems or predominantly manual reporting processes that cannot produce the required reports on a timely basis. Worse, private companies may not have a complete finance team capable of providing these reports and an IT team who can support these organizations.Prior to going public, these companies must be able to produce financial and non-financial reports with material business information within the required reporting timelines. During IPO, the Prospectus must include three years of annual audited financial statements, reviewed by the underwriters and approved by regulators. Post-IPO, annual and quarterly reports must be submitted to the Philippine Stock Exchange and SEC within the deadlines set.Suffice to say, these instances highlight the importance of an efficient and effective financial and management reporting process that can generate timely and reliable reports. Information reliability and relevance depends on whether the companies have the right infrastructure and team that can generate reasonably accurate corporate reports. The right infrastructure means that organizations need IT systems and policies that support how data is accumulated, recorded and reported so that management and the public can optimally use this information in making decisions. The right team does not only refer to competent manpower — it means a continuously trained talent pool, periodically replenished through strategic hiring.PROTECTING THE REPUTATION OF THE FAMILY BUSINESSGoing public raises the company’s profile, making it more visible among customers, partners, and potential business collaborators. This increased visibility exposes the public company to higher reputational risk, thereby increasing scrutiny on the family’s brand. Companies need to institutionalize enterprise-wide risk management and strengthen compliance to protect their reputation.Family businesses may seek guidance from third-party legal and business advisors to help their companies prepare. They must involve underwriters and regulators early to anticipate issues that may hinder the IPO. Family businesses must also be ready with alternative fund-raising activities in case the IPO is deferred or abandoned so that their growth objectives can remain on track.ASSESS, PLAN, EXECUTE — AND FOLLOW THROUGH!An IPO should not only be viewed as a one-time event focused on raising capital. It starts from the decision to do an IPO and transform the company before the listing happens. It is a meaningful journey for the companies and its owners which requires a paradigm shift from the entire organization that cannot be done overnight.The strategic decision of a family business to go public demands meticulous planning and near seamless execution. Post IPO, these family businesses must be able to deliver what they committed to investors. When done right, barring unanticipated unfavorable economic events, this beneficial corporate upgrade called an IPO should enable family businesses to sustain the value promised to both the family and public investors. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Kristopher S. Catalan is an assurance partner and the EY private leader of SGV & Co., and Patricia Jazmin D. Patricio is a Financial Accounting Advisory Services (FAAS) manager of SGV & Co. 

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12 February 2024 Aris C. Malantic and Julius Ivan L. Bautista

Transforming bold vision into a successful IPO journey (Second Part)

In this period of economic recovery, entrepreneurs are increasingly looking at initial public offerings (IPOs) as an avenue to raise additional funds. But in the face of economic and geopolitical headwinds, how can CEOs turn their bold vision into a successful IPO? In the first part of this article, we discussed how a company can start its IPO journey and the key factors to consider in order to succeed. However, now that we know what characterizes a successful IPO journey, CEOs need to ask if they are ready to deliver. Here, we discuss how the right IPO strategy and preparation can contribute to a successful IPO. IPO STRATEGYAn IPO strategy starts with an equity story that incorporates a well-built corporate strategy and a fine-tuned business plan. A corporate strategy focuses on the company’s long-term goals, an optimal group structure, and growth objectives, while a business plan defines how the company can compete within the market and seize new opportunities. With a well-polished IPO strategy, IPO aspirants can better evaluate their strategic options by deciding on potential multi-track approaches to listing and the potential listing venues, coordinating with external advisors and identifying the right capital market that will resonate with the company’s business sentiments and growth ambitions. A well-defined IPO strategy should be anchored on a holistic end-to-end view of the key milestones in an entity’s IPO journey — from strategic planning to IPO execution and after-market performance. This strategy is typically supported by a health check to identify any potential gaps within the company’s structures, finance function, environmental, social and governance (ESG) agenda, systems and controls, and investor relations. STRUCTURESOrganizational structures bind the teams working together towards a common goal and demarcate functions between them. Given an IPO’s transformational nature, aspirants should consider revisiting and reshaping their current structures where needed to support the efficient functioning of the organization as a public company. This might also entail re-evaluating the group structure, governance, ownership and corporate structure. IPO aspirants should reevaluate the group structure if the potential issuer or listing vehicle is part of a group. The group should define which company will be the potential issuer or listing vehicle, the country of registration, and its legal form. They must also assess which group structure is best positioned for listing through a transfer pricing analysis of current and future related party transactions. Governance structure reevaluation can start by assessing whether there is a defined set of regulations and documented policies and procedures, and whether these align with governance reporting requirements and provide adequate transparency and accountability to current stakeholders. Since company ownership will be opened to the public, current shareholders should assess the ownership structure, the optimal proportion the public will own, what types of investors they are planning to attract, and the corporate image they want to project since these potential investors can influence the strategy and direction of the company post-IPO. Corporate structure should also be reassessed to let potential investors identify each business unit or department’s level of responsibility and accountability. A well-defined corporate structure separates management and ownership roles. Internally, the structure should also allow CEOs to articulate the business plan to the group organization, how the IPO affects employees, and how business operations will be adjusted prior to and upon realization of the IPO transaction. FINANCIALIPO aspirants must look at the finance organization through the lens of public markets even before they go public. Depending on the listing venue, changes to generally accepted accounting and financial reporting principles currently being applied may be required in preparing the financial statements. Companies need to check if the current finance infrastructure and processes can produce timely financial reports, as these are vital in building investor trust and confidence. As regulations on financial reporting vary across jurisdictions, a well-functioning financial statements close process that is supported by a capable mix of resources with the appropriate skills are necessary in responding to expanded reporting requirements. Potential public and institutional investors will also consider the company’s external auditor. Appointing a credible external auditor will help improve investor confidence in the financial reports of the company. External advisers can provide objective viewpoints that can help in addressing any financial reporting gaps that the company may have overlooked in previous periods to optimize the finance function. ESG AGENDAIn the Philippines, the ESG agenda is emerging as an important element for stakeholders in the IPO stage. Investors have started to consider ESG factors when making investment decisions, along with a company’s financial performance, resilience, and ability to sustain operations during adverse situations. Public companies are required to disclose their sustainability efforts as well as include their plans to further improve performance and achieve their ESG targets. Companies can ensure compliance with sustainability principles by engaging advisers with an ESG background. Regulators also continue to develop and standardize climate disclosures required of public companies, such as the Securities and Exchange Commission’s (SEC) Revised Sustainability Reporting Guidelines and the Sustainability Reporting Form, to keep up with global developments around sustainability reporting. SYSTEMS AND CONTROLSIPO aspirants should revisit their enterprise-wide systems and controls to identify potential weaknesses and opportunities for improvement. Continuous process improvement should be implemented to ensure that the systems and controls are effective in capturing and mitigating potential risks, especially in a growing business operations setting. Entity-level controls, information technology (IT) general controls, and business processes controls should be documented properly to ensure they can support the requirements of a public company. An effective internal audit function should be in place, performing as intended in the organization’s overall control framework. Internal audits can focus on areas such as the effectiveness of the company’s internal controls, corporate governance, and accounting processes. Internal audits also help the company in its continuous process improvement efforts. INVESTOR RELATIONS AND COMPLIANCE FUNCTIONSA company’s investor relations function facilitates two-way communication between the company’s corporate management and its investors. It also enables the integration between finance, communication, marketing and legal functions. Critical information provided by the investor relations function includes press releases, earnings reports, and analyst briefings which contribute to a transparent relationship between the company and its stakeholders. They help ensure that shareholder concerns and interests are also communicated to management and the board. Further, the investor relations function cohesively monitors the company’s stock price, performance, competitive position, and public image. An investor relations officer normally reports to the company’s Chief Financial Officer (CFO) or Treasurer who has the primary responsibility over investor relations. Meanwhile, the compliance function becomes even more relevant due to the additional regulatory requirements for a publicly listed company. These include regular reporting and ad hoc disclosures such as information on mergers and acquisitions, changes in leadership, legal issues, and significant sales or purchases of assets. TIMINGAppropriately timing the market can result in a win-win situation by providing optimal valuation and IPO proceeds for the company, and investment returns for IPO investors. IPO aspirants must be able to communicate a realistic timeline to the entire IPO team and set milestones tracked by a Project Steering Committee and a Project Management Office (PMO). The PMO ensures that the IPO project has enough resources throughout the IPO process, monitoring the strength and buoyancy of capital markets, current economic indicators, and company performance. Some companies decided to postpone or withdraw IPO plans due to market volatility, after-market performance of previous IPOs, and geopolitical uncertainties. In such cases, contingency plans are necessary to achieve the right timing — especially when the market reaches its ideal state for IPO listing. The PMO should be able to assess when to execute these contingency plans and consider the multi-track approach designed during the evaluation of the company’s IPO strategy. IPO TRANSFORMATIONStarting the IPO journey does not mean immediately closing any gaps found during preparation. Instead, it presents the organization with an opportunity to identify them, prioritize which gaps require immediate action, and plan how to close gaps which can affect the company’s valuation before and post-IPO. Our accumulated experience in supporting IPO aspirants tells us that IPO journey must be approached as a structured, managed transformation of the people, processes, systems and culture of an organization. Through careful planning and consideration of these factors, companies will be better equipped to transform their bold vision for growth into a successful IPO. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Aris C. Malantic is a partner and the Financial Accounting Advisory Services (FAAS) leader and Julius Ivan L. Bautista is a FAAS associate director of SGV & Co.

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05 February 2024 Aris C. Malantic and Jerwin C. Esquibel

Transforming bold vision into a successful IPO journey (First Part)

First of two parts As the economy continues to recover, many entrepreneurs are contemplating how to raise funds through an initial public offering (IPO) and level up their game. Chief executive officers (CEOs) envision growth and set new goals such as investing for innovation, increasing brand awareness, and improving their companies’ credit worthiness. In the face of current economic and geopolitical headwinds, rather than asking whether the markets are ready for IPO aspirants, the key question for CEOs pursuing their bold vision is, “What can we do to achieve a successful IPO journey?” The IPO journey is more than just a financing event — it should be approached as a transformational process. Because this has to be a structured and managed transformation of the people, processes, systems, and culture of an organization, it is crucial for CEOs to perform an IPO readiness assessment and consider the following critical success factors to transform their bold vision into a successful IPO journey. EVALUATING STRATEGIC OPTIONSEven if a company assesses that the current environment is not ideal for fundraising, it can serve as an opportunity to plan and prepare for an IPO or any other strategic transaction. While waiting for significant markets and geopolitical uncertainties to settle, executives can embark upon their IPO journey. Planning for an IPO involves a holistic discussion about the strategic options offered by the capital market. An IPO aspirant needs to design a multi-track approach that covers the options for listing (either direct or dual and secondary listing) as well as other financing methods such as private capital, debt, or a trade sale. Considering an array of exit and funding alternatives in an IPO readiness assessment is critical to achieve flexibility in the timing and pricing of alternatives and to exploit narrow IPO windows. EARLY PREPARATION IS KEYIPO aspirants should begin the IPO readiness process early to allow the pre-listing company to act and operate like a public company at least a year before the IPO. The preparation can start with a comprehensive IPO readiness assessment as a first step, ideally over a 12- to 24-month timeline. The IPO readiness assessment will serve as a diagnostic phase so that CEOs can identify opportunities for the transformation of certain key focus areas. The IPO readiness process also includes building a strong IPO team with members from management, the board, and external advisors, among others. External advisors can be composed of bankers, lawyers, auditors, and investor relations advisors. Assembling a powerful team begins from top management. Institutional investors will look to the CEO, who is mainly responsible for articulating and executing the company’s vision and business strategy, while the chief financial officer (CFO) will likely be focused on investor relations in a public company. A quality management team should also ideally include executives who have experience in IPOs and managing public companies. TAKING ON AN INVESTOR’S PERSPECTIVEA successful IPO can be characterized by a compelling equity story that captures the appetite of institutional investors. Hence, it is vital for CEOs to approach their IPO journey from an institutional investor’s perspective. Institutional investors mainly influence the movement in stock prices and include mutual funds, hedge funds, banks, insurance companies, pension funds, larger corporate issuers and other corporate finance intermediaries. IPO aspirants need to recognize the need for enhanced corporate governance, recruiting qualified non-executive board members, improving internal controls, and forming a qualified audit committee. This also includes the need to fine-tune internal business operations through working capital management, proactively addressing regulatory risks and rationalizing the business structure. Given the increased stakeholder demand for sustainability, IPO candidates must also be able to clearly articulate and demonstrate an embedded environmental, social and governance (ESG) strategy and culture, from climate change mitigation initiatives to promoting board and management diversity. STRONG PERFORMANCE TRACK RECORDInvestors usually base their IPO investment decisions on financial factors, especially debt to equity ratios, revenues, return on equity (RoE), profitability and earnings before interest, taxes, depreciation, and amortization (EBITDA). This also includes the capability of IPO candidates to comply with new financial and sustainability reporting standards and securities regulations. IPO investment decisions may also be based on non-financial factors, including the quality of management, corporate strategy and execution, brand strength and operational efficiency, and corporate governance. IPO candidates should also focus on profitability and cash flows or articulate a clear path to profitability. They must craft a compelling equity story backed by a strong track record of growth that sets their company apart from their peers while maximizing value for their stakeholders. TRANSFORMATIONAL IPO JOURNEYAlthough an IPO is a key turning point in the life of a company, market leaders should not treat an IPO as a one-time financial transaction — they must approach it as one defining step in a complex transformational journey from a private to a public company. While IPO aspirants need to be cautious given the challenging capital market environment, CEOs must focus on preparing an equity story that addresses the concerns of institutional investors. This transformational process begins with IPO readiness and ample internal preparation, aiming towards a successful IPO journey even with the fleeting market window of opportunity. The second part of this article will discuss additional elements that can contribute to the success of an IPO journey.  This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Aris C. Malantic is a partner and the Financial Accounting Advisory Services (FAAS) leader, and Jerwin C. Esquibel is a senior director under FAAS of SGV & Co.

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