Entrepreneurs weigh in on maximizing today’s IPO market

Thanks to high valuations, an extended low interest rate environment and strong investor appetite for equities, 2021 was the most active year for IPOs in the past 21 – in both number of deals and proceeds.

In total, 416 companies raised proceeds of $155.7 billion, with the healthcare (162 IPOs) and technology (128 IPOs) sectors leading the way.

Interestingly, there were more special purpose acquisition companies (SPAC) IPOs than traditional IPOs in 2021, with 583 SPAC IPOs raising $152.5 billion. This represents more SPAC IPOs by number and proceeds than in the preceding decade combined. In addition, more than 200 SPAC mergers were announced in 2021. In spite of record activity levels in the traditional IPO market, 31% of newly listed public companies in 2021 have come from SPAC mergers.

Advice on preparing to be public

Private companies considering an IPO should stay current on market and sector trends and maintain structural flexibility to preserve their options. Preparing to be a publicly held company requires time and a great deal of effort in terms of strengthening internal policies and processes and expanding the talent base, but much of that can be achieved while still evaluating the optimal path to going public.

Companies considering a public offering would also do well to take advice from two distinguished speakers at EY’s November 2021 Strategic Growth Forum, one of the country’s most prestigious gathering of CEOs, high-growth entrepreneurs, C-suite executives representing global market leaders and professional investment fund managers.

At that event, Xtreme Solutions CEO and co-founder of Athena Technology Acquisition Corp. Phyllis Newhouse and Flywire CEO Mike Massaro – both former winners of EY’s Entrepreneur Of The Year® award – joined EY Americas Vice Chair Sam Johnson for a discussion on the evolving capital market landscape and taking a company public. The input from these highly respected entrepreneurs and leaders was especially impactful given that both of their companies had undergone IPOs during 2021.

Here’s a brief recap of some key lessons from that question-and-answer session.

Building out a board of directors and group of advisors 

Sam: Phyllis, you spent a lot of time focusing on your board, advisors and people around you when planning Athena, your special purpose acquisition company – also known as a SPAC. How did that help you in the process and what would be your advice around that? 

Phyllis: When Isabelle Freidheim¹ and I founded our SPAC, we wanted a diverse board and an incredible management team that had experience across industry. And we also wanted to be very intentional about the target company that we were going to merge with. That company had to be very open to having diversity on its board; it was a line in the sand for me. Another thing that I learned quickly is that the women we brought on board as we were building our team just had an amazing level of expertise that was so valuable in this market. The lesson is that it is entirely possible to build a diverse board and have a women-led company and be successful.

Sam: What makes for a great advisory team?

Mike: It’s important to first understand what skills you already have on your board and your management team, and then to identify the gaps that need to be filled. And then to consider other factors, such as diversity. If you’re an international business or you plan on international growth, do you need someone with that experience? If you don’t have anyone who understands the capital markets, you probably want someone who does. Do you need someone who has public market board experience, or someone with specific committee experience, such as audit committee or comp committee?

If you do an evaluation of the company’s leadership, you’ll see those gaps, and that will inform the type of advisory team members you should seek out.

On considerations for operating companies when considering a merger with a SPAC

Sam: Phyllis, how did your SPAC Athena do its due diligence? How much rigor did you put around making sure you merged with the right company, both in terms of its technology and its leadership?

Phyllis: Our leadership was very tech-savvy and so we knew we wanted to merge with a technology firm.

We had teams of individuals that did our initial calling to narrow the field so we could quickly go through, look at each management team, talk to them and really understand what they had to offer. We were quickly able to assess whether each firm’s technology would be disruptive. Was it able to scale? Did they have a plan to scale?

And so, once we went through that process, we easily narrowed down our list to our top five candidates, and from there, to our No. 1 choice, the energy technology company Heliogen². At that point, we had our due diligence team create a roadmap of what the due diligence would look like on the financial side and then the tech side.