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EY IPO and Strategic Transactions ConferenceConsidering an IPO in today’s marketplaceEvent highlights

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Rise aboveEY’s 2014 IPO and Strategic Transactions Conference

The numbers for strategic transactions are trending upward. Last year was the strongest for IPOs since 2004, with results that exceeded industry expectations; 2014 is on pace to be even better. In the first quarter alone, we saw 71 IPO registrations, a 115% increase over last year’s start. We’ve seen mergers and acquisitions (M&A) values continue to increase, thanks to a growing number of deals over a billion dollars.

All of this means the time is right for executives to consider the options, craft a plan and make a move toward the transactions that will take their businesses to the next level. In an effort to share insights and help business leaders make more informed decisions, EY’s Northeast Region hosted the EY IPO and Strategic Transactions Conference to provide a forum for discussion with CFOs and CEOs who executed successful IPOs or negotiated a strong exit.

The half-day, fast-paced conference featured transaction advisors, investors and analysts who offered leading practices for picking the right transaction and for bringing it to fruition. EY’s thought leaders lent greater context to recent trends and statistics.

The conference panelists included C-suite executives from more than a dozen leading organizations, including: AllianceBernstein, Credit Suisse Securities LLC, Cooley LLP, The Carlyle Group and Barclays. Super Bowl champion Michael Strahan, whose 15-year career with the New York Giants landed him in the Pro Football Hall of Fame, kicked off the day, offering lessons he’s learned on and off the field. Those lessons, he said, have guided him in his current career as a TV personality and successful entrepreneur and inspired attendees with another perspective on leadership.

For those embarking on a transaction, the good news is that the US has the most attractive IPO market in the world. The US market offers the most liquidity today.

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When a company lists here, it is listing in the pinnacle of capital markets globally. When going for a sale, effective planning, policies and people will help make for a smoother transition.

Those considering an IPO left the conference with several points to consider and address, including:

• Before going public, companies need to think about why they’re doing it. Is it to monetize as the business grows? Is it succession planning? Is the company creating acquisition currency?

• Companies should start building a relationship with the banking and investor community early, at least a year or two ahead of time. It is important to start telling your story and get the bank involved so it knows how you plan to help execute your business plan. The relationship goes beyond that IPO when there are follow-on offerings or an M&A.

• The use of third-party advisors is prevalent, as companies need to embrace all options early on and to be prepared. Third-party advisors can help the company get organized before the IPO, whether considering infrastucture preparations, evaluating strategic options, or even aiding in the selection and evaluation of underwriters.

• Companies need to do their due diligence and plan accordingly. A great company can go public in any market. The confidential filings option afforded through the JOBS Act, however, offers little downtime, so you need to be ready to go.

And for those who wanted to know what investors are looking for when considering your initial offering, Vincent C. DuPont, Senior Vice President, CFA, AllianceBernstein, provided what he called “guideposts.”

• The industry itself. Is it prone to concentration?

• Consumer preferences. How do you differentiate the business?

• Product attributes. How do you think about the natural characteristics of your market?

• Financial performance. If you have a high return on assets, can you actually sustain that?

Those seeking to maximize the value they can reap through a strategic exit garnered multiple tips. Among them:

• Preparation is critical to maximizing the full value of the business, regardless of the sale path. Do some housekeeping. Examine the areas of the business that aren’t covering cost of capital or are low growth.

• Be able to articulate where you are today, and why you think the business can continue to grow into an expanded, addressable market. Be ready to tell your story.

• Line up your heirs apparent. Think about who the No. 2 and No. 3 people are going to be and give them prominent roles with potential buyers or in the road-show presentation. Make sure investors or potential buyers get to see those leaders and build confidence in their capabilities.

The past few quarters have presented long-awaited opportunities, and we’re looking toward what’s taking shape in the coming months. The landscape is primed for M&A activity. Going into the conference, we knew there were promising trends, based on the survey results in EY’s Capital Confidence Barometer. Fifty-three percent of executives from global organizations expect US deal volumes to improve and over 90% believe credit availability is stable or improving.

CEOs are taking greater risks and doing bigger transactions, and that’s a sign of the confidence that’s building in the marketplace. As EY’s Richard M. Jeanneret, Americas Vice Chair, Transaction Advisory Services, put it: “The market is recovering exactly in the way we predicted it would, with bigger deals reflecting more confidence, more willingness to take greater risk, and I think that will bring the rest of the market along.” ◄

The past few quarters have presented long- awaited opportunities, and we’re looking toward what’s taking shape in the coming months.

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Over his 15-year career with the New York Giants, Michael Strahan struck fear in the hearts of opposing quarterbacks, setting the single-season record for quarterback sacks and leading his team to a victory over the previously unbeaten New England Patriots in Super Bowl XLII. Ironically, it was the fear of failure that motivated Strahan to be one of the best defensive ends in the National Football League (NFL) and be voted into the Pro Football Hall of Fame.

“I was always more afraid of failure than excited by success,” Strahan told an audience of entrepreneurs and C-level executives at the 2014 EY IPO and Strategic Transactions Conference. “I pushed myself harder every year because I didn’t want to be the guy who got cut, the guy on the

Keynote

On winningFormer New York Giant and Football Hall of Famer Michael Strahan offers his insights

bubble who picks up the paper and sees that’s he on the list of those fighting for his job. The success just came with that. I never thought about the Hall of Fame.”

The same source of motivation has helped Strahan transition seamlessly into a successful career as a TV personality on LIVE with Kelly and Michael, Fox NFL Sunday and now, Good Morning America.

“I don’t want to be the guy who killed Regis’ show,” he said.

Interviewed by EY New York Office Managing Partner Mark Besca, Strahan described how he got into football backwards, playing youth football at age 8 and then stopping when his family moved to a US Army base in Germany. He didn’t put shoulder pads on again until his father sent him to live with his uncle in Houston, where he played high school football and earned a college scholarship.

He achieved his goal — a scholarship offer from Texas Southern. His play at the small college program caught the attention of NFL scouts, and he was drafted by the NY Giants in 1993, where he found himself sharing a locker room with future Hall of Famer Lawrence Taylor. “I spent my first year observing the leaders. I took those lessons to heart when I became one of the veterans on the team.”

As he discussed his career, Strahan also wove in some lessons for the entrepreneurs in the audience about leadership and teaming, recounting his relationships with his coaches, especially Tom Coughlin.

“I hated him at first,” Strahan said. “But now I can’t imagine playing for anyone else. I’d run through a brick wall for him.”

Strahan said he defined success more for the team than in winning individual honors. “I didn’t have my greatest statistical year” when the Giants won the 2008 Super Bowl, “but that was the most fun because I shared it with the team.”

Drawing on the lessons taught by Coughlin and his other coaches, Strahan told the entrepreneurs that as leaders,

“you need everyone to buy into the success of the organization. We all hire people, why do that if you micromanage and look over them all the time. Hire the best person and trust them to do their job. Trust your leaders.”

He also said that he was constantly challenged by his competition, both by offensive linemen on opposing teams and also the younger players on his team, like Justin Tuck and Osi Umenyiora. “I never stopped learning and trying to get better.”

Strahan, who retired after winning the Super Bowl in 2008, also said that he never viewed himself as just a defensive leader. “When you are a leader, you lead the entire team. On the sideline, I always tried to make the offensive players know that we appreciated what they were trying to do. You have to make them believe they can get to that next level.” ◄

“I was always more afraid of failure than excited by success. I pushed myself harder every year because I didn’t want to be the guy who got cut.”Michael StrahanHost, Good Morning America

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Signs show that 2014 is shaping up to be a banner year for IPOs, and confidence in the marketplace is improving. The question is, will that momentum continue?

With their take on what could transpire next, a panel of leading transaction professionals joined EY’s Joseph Link, Financial Services Office IPO Leader and Metro New York Banking Capital Markets Segment Leader, to discuss the latest news from the street. The good news, panelists agreed, is that the US continues to have the most attractive IPO market in the world.

“If you look back, you see that we [the US market] have consistently been the place that companies want to come and list,” said Robert McCooey, Senior Vice President, NASDAQ OMX. John Kolz, Managing Director, Investment Banking, Credit Suisse Securities LLC, agreed, adding: “There’s no arguing that the depth of the market and its ability to withstand shocks has been proven over and over.”

Panel

News from the streetIPOs and market confidence are trending up

There was a “strange valuation episode in biotechnology stocks, cloud computing stocks and social networking stocks,” said Vincent C. DuPont, Senior Vice President, CFA, AllianceBernstein. “You had a really forceful correction — in excess of 60%, in some cases — in the last few months. That makes me feel good, because it seemed like there were excesses that needed to be removed from the market, and of course that’s happened without bringing the entire market down.”

Credit markets are robust, even “frothy,” said EY’s Richard M. Jeanneret, Americas Vice Chair, Transaction Advisory Services. The lower cost of capital is not only having an impact on private equity-backed transactions, but it is also influencing the amount of leverage CFOs are willing to undertake.

“They’re starting to put some leverage back on the books today, because you’re looking at generational costs of borrowing

and locking in for long term,” Jeanneret said, calling it a sign that corporations are

“stocking up their war chests a little bit to do more M&A.”

Not all statistics, however, are trending upward. IPOs for the technology and health care sectors have ebbed, said Kolz of Credit Suisse. Anyone who participates in the IPO world probably could have predicted that it would happen, Kolz added. The real question, however, was how severe it would be and whether it would be viewed in hindsight as healthy.

“No matter how you slice it,” Kolz said, “IPOs historically have provided growth that’s not available in other types of investment alternatives for asset managers who are the general buyers. That’s especially true in the technology world,” he added.

A series of events have occurred to help restore confidence in the marketplace, said EY’s Jeanneret. The two-year budget deal and the debt ceiling resolution in Washington, as well as the smooth transition at the Federal Reserve, have contributed to the sentiment. “I think there’s confidence in the marketplace again, and you see it in the type of M&A that’s occurring,” said Jeanneret. Deals greater than a billion dollars are up close to 30% so far this year, Jeanneret added.

“If you’re an investor or a corporate CEO taking greater risk today by doing a bigger transaction, that’s a sign of confidence that you have in … the marketplace, the economy and M&A as a technique for growth,” Jeanneret said. “I actually think the market will continue to build up that momentum.” ◄

“There’s no arguing that the depth of the market and its ability to withstand shocks has been proven over and over.”John KolzManaging Director, Investment Banking, Credit Suisse Securities LLC

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You’ve made the decision to go public. Now comes the hard part: putting together the right team to take you through the IPO process and beyond.

A panel comprising veterans of the process, including advisors and C-suite executives of recent IPO companies, shared insights and offered advice — sometimes pointed — on making it all work in “Ready … set … go: building the right team” at the EY IPO and Strategic Transactions Conference.

Led by moderator Bo Yaghmaie, Partner, Cooley LLP, the panel quickly honed in on some key lessons and principles.

Be confident in your actionsCompanies looking to go public must be confident in their ability to beat their numbers and hit their cues. Forecast targets for the top and bottom line should be eminently achievable. Reports must be thorough, accurate and timely.

“We want to be sure the management team and board is set up to manage what it takes on,” said Habib Kairouz, Managing Partner, Rho Ventures. “There’s no more room for error.”

The time to start building the right team is now. Ideally, the company should share its vision of the future with bankers at least a year ahead of time, if not two. It’s important to start telling the story, and to get the bankers involved and knowledgeable about how the company intends to execute on its vision.

The same is true with analysts. It’s important to remember that even when bankers and analysts have the same bank

Panel

Building the right teamIPO veterans offer tips and insights on building the right team

name on their calling card, “they’re not talking to each other,” said Div Gupta, Partner, Cooley LLP. That’s because they’re not supposed to, under the terms of a far-ranging settlement between the U.S. Securities and Exchange Commission, The New York Stock Exchange and the National Association of Securities Dealers.

“Bankers are always in sale mode, they’ll find you,” noted Todd Sloan, CFO, Tremor Video. “But it’s harder to get to the analysts, and it’s incumbent on you to go out there and build that relationship.”

Get your accounting and legal teams lined upHaving the right accounting and legal teams in place is critical to driving the process. It’s important to choose people who have the industry knowledge and depth of experience the company needs. Without that knowledge and experience, the odds of getting through the window of opportunity decrease significantly. The right teams, especially those with significant and specific sector experience, can help the company draft its road show presentation and the S-1 filing.

Dr. Derek Chalmers, President and CEO, Cara Therapeutics, noted that it’s a good idea to talk with others who have worked with the company’s advisory candidates recently. “You’ll get the most honest feedback,” Chalmers said.

Remember the importance of internal controlsIPO companies should make sure that their resources, policies and procedures

are in place. Internal controls are critical to meeting the due diligence requests that are part of the IPO process. Don’t wait to assemble the documentation that investors want, said Neal Davies, Senior Vice President, Merrill Corporation. Create a secure environment, and “set it up as early as you can.”

Ready … set… go!The overarching theme of the session was preparation. Companies should start getting ready for the IPO and beyond as soon as they make the decision to go public. Foresight and planning early in the process increase the odds of a successful outcome. So when is the time to start building the right team? Immediately upon making the decision to go public — if not before. ◄

“We want to be sure the management team and board is set up to manage what it takes on.”Habib KairouzManaging Partner, Rho Ventures

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If there’s one thing leaders who have undertaken the IPO journey have learned, it’s to start preparing for the ride well in advance. That means writing and revising your registration statement, making key hires and understanding the metrics by which your company will be measured.

Those were the resounding themes from panelists who have taken companies public and who have advised entrepreneurs on the process. Moderated by EY’s Anastasia Economos, Senior Partner in the Financial Accounting and Advisory Services group, the session featured leaders from the New York Stock Exchange, Barclays, The Carlyle Group, ICR and Novira Therapeutics, Inc., who all emphasized the importance of timing.

Before moving forward, the management team or board first needs to ask why the company wants to go public in the first place — whether it’s to enable owners to

Panel

Lessons learnedCEOs, CFOs and advisors share lessons learned on the road to going public

monetize, to realize growth capital or for succession planning, said Brian Reilly, Managing Director and Global Head of Equity Capital Markets for Barclays.

“Being public is not for every company,” he said, “and as my fellow panelists can attest, it’s not always smooth sailing.”

For those who forge ahead, “it makes an awful lot of sense to start as early as possible, because that just gets you ahead of the game,” said Chris Schade, CEO, Novira, whose company started drafting the S-1 document about a year before the company actually filed.

For leaders at The Carlyle Group, the process started about 18 months before.

“For us, it was a team exercise, because it was the first time we had to articulate Carlyle in the public,” said Adena Friedman, CFO and Managing Director.

“It’s a very private company, so how do you articulate the business? How do

you make sure that they understand the compelling components of the business?”

It’s no surprise that a company might take a year or more to prepare, said David Ethridge, Senior Vice President and Head of Capital Markets Group, NYSE. It’s best not to proceed until you can accurately project your results on a quarterly basis.

“I’d say it’s probably the one place where we see them fail once they go public,” he said. “To stumble out of the gate and miss their first set of numbers that they put out to the street, that’s the big sort of no-no.”

Tom Ryan, CEO, ICR, agreed with NYSE’s Ethridge. Falling short of your projected results, he said, “can really penalize the company, prohibit you from tapping the markets for a secondary, [and] prohibit your private equity sponsor potentially from reaching their liquidity goal.”

Having the right team of advisors can help you prepare, said Carlyle’s Friedman. A law firm that has taken your peers public will understand the value drivers and the risks of the business. Some companies have engaged a specialty firm to help them select and manage their underwriters.

Having someone to help a company deal with potential investors is important, but even more essential is having an integrated plan for being a public company, said Ryan of ICR. You have to think ahead about how you’re going to handle crises, media and employees because the stakes are much higher once you go public.“ The price of the deal isn’t the finish line,” Ryan said. “It’s the beginning of a marathon of being a public company.” ◄

“Being public is not for every company,” he said, “and as my fellow panelists can attest, it’s not always smooth sailing.”Brian ReillyManaging Director and Global Head of Equity Capital Markets, Barclays

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Owners of private companies who are looking to sell could take a page or two from the IPO lesson plan: Preparation and communication are critical. But a successful exit strategy also involves thinking about what the buyer wants to purchase, and why.

The panelists of the “Strategy of an exit” session at the EY IPO and Strategic Transactions Conference had plenty of insights to offer C-suite executives who are considering which track to pursue — IPO or an alternative. But they also provided simple, actionable advice on how to get ready for the best possible exit.

In looking at all the options and determining the company’s value, “the key is taking off the rose-colored glasses and looking at it realistically,” said Martin Sumner, Managing Director, The Carlyle Group. Even if an exit is the preferred option, the company should still have the right policies and procedures in place as early as possible, said Brian Cooper, Executive Vice President and Chief Financial Officer, Everyday Health.

“Preparation is critical to get the full value of your business regardless of the sale path,” said Simon Western, Senior Managing Director, Financial Services, Ernst & Young Capital Advisors, LLC.

Start with the management teamThat means making sure the right management team is in place. It’s important to build a management team that can execute either an exit or an IPO successfully. But it’s also important to

make sure the management team is ready for the transition, or the handoff, as the case might be.

The key issues are communication and compensation, Cooper said. “You need that management team to be highly engaged and to demonstrate the value of the business. They need to understand, or deserve to know, that this is a good thing.”

Christopher Strong, Director, Savanna Energy Services Corporation, offered the example of his company’s sale. Most of the senior executive team had change in control arrangements with accelerated vesting; since the buyer planned to bring in its own team, the executives walked away with the cash. On the other hand, the buyer was looking to keep operations people, and the operations people had long-term incentives that didn’t accelerate, giving the buyer a chance to keep those vital resources on board.

From the buyer’s perspectiveBefore the sale process begins, the company should take a hard look at businesses that aren’t covering their cost of capital or aren’t growing as expected, with an eye toward cleaning house as needed, Western noted. At the same time, the company should make sure it’s allocating enough resources to potential growth paths. That will help it tell a good growth story — and articulating that growth story is vital, Cooper said.

For most buyers, there are certain prerequisites: a track record of profitability, attractive growth

opportunities and a high-quality management team. The latter, especially, can be a concern when the founder or CEO is a charismatic figure who has driven the company’s success.

“What do you have that you’re going to leave behind when I give you a pile of money and you move to Boca or somewhere like that?” Strong asked. The answer, according to Western, is to identify the No. 2 and No. 3 people and work out the timing of any possible transaction to make sure the glide path is smooth.

Then, give those people prominent roles with potential buyers, “making sure that investors or potential buyers get exposed to and build confidence in that particular person’s capabilities,” said Western.

On the exit rampIn all things, the right management team, with the right incentives and the right policies and procedures, helps to attract buyers — and makes the entire process go more smoothly. Transparency, and a realistic understanding of your company’s potential value, are also keys to a successful deal. Together, these elements can help a company find the best possible exit. ◄

Panel

Strategy of an exitWhen an alternative exit is the road best traveled

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About EY’s IPO services EY is a leader in helping to take companies public worldwide. With decades of experience, our global network is dedicated to serving market leaders and helping businesses evaluate the pros and cons of an IPO. We demystify the process by offering IPO readiness assessments, IPO preparation, project management and execution services, all of which help prepare you for life in the public spotlight. Our Global IPO Center of Excellence is a virtual hub which provides access to our IPO knowledge, tools, thought leadership and contacts from around the world in one easy-to-use source. www.ey.com/ipocenter

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