A Guide to GOING PUBLIC kpmg.ca/ipo Contents Introduction . 2 Applying for a stock exchange listing . 29 Regulatory review . 30 Deciding whether to go public . 4 Developing marketing materials . 31 Why go public? . 6 Marketing . 32 What are the advantages and disadvantages for Pricing . 32 your company? . 6 Finalize documents . 33 Is your company ready? . 8 The closing . 33 Are the markets ready for you? . 8 Pricing considerations . 9 Continuing as a public company . 34 Assess the impact on your company . 9 Transition . 36 Costs of going public . 10 Implement strategic operating plans . 36 Duration of the process . 10 Regulatory matters . 36 Make the decision . 11 Continuous disclosure requirements . 37 Investor relations . 42 Preparing to go public . 12 Perform a thorough review of your company . 14 Further information . 43 Deciding on the corporate and management structure . 17 Tax considerations . 44 Assembling the team: internal and external members . 17 Markets and forms of going public . 47 Develop a timeline and framework for Acronyms defined . 51 project management . 20 Glossary . 52 Developing the offering . 21 Appendices . 54 Executing your IPO . 23 Appendix 1: Contents of a prospectus . 55 Preparing your prospectus . 26 Appendix 2: Selecting and working with Content of a prospectus . 28 the underwriters . 59 Underwriters’ due diligence . 28 Appendix 3: Stock compensation plans . 63 kpmg .ca/ipo © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . 2 A Guide to Going Public INTRODUCTION Are you thinking of taking your company public? T aking your company public is an the beginning of a new life in the exciting and challenging process public spotlight . For others, it may for leaders like yourselves – the be the achievement of a major entrepreneur, the chief executive business and financial reward . Being officer, the chief financial officer – public brings prestige and visibility and for all the other stakeholders with all the players in the market – involved in the process . For some, customers, suppliers, employers, going public may be the culmination and the financial community . of one long-term strategic goal and kpmg .ca/ipo © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . 3 A Guide to Going Public L ike any other initiative that brings high long-term rewards, the going public process is not without its challenges: complex accounting rules and reporting requirements, pressures on time and resources, and managing new stakeholders – the board, shareholders, and, possibly, new management . But you can confidently face these by managing their impact if you are well informed and prepared for the challenges that lie ahead . That’s where KPMG comes in – we work with our clients to help examine whether going public is the right choice for their company . Then, if they decide that they want to follow this route, we can help them through the IPO process and beyond, as they operate in the public company environment . “We had been thinking about our strategy for growth and value creation for quite some time and considered a number of other options – but then going public was the best option that brought together multiple business goals. We committed to the process as a team, listened to our advisers, maintained control of the process, and it worked out more smoothly than we had expected.” We have developed this publication to help you gain that understanding . By providing you with a practical, realistic perspective of what is involved in this process, we want to help you make an informed decision . We review factors to consider before you make the decision . Then, if you decide to take your company public, we discuss how you can plan and execute your IPO, and ultimately, what you might expect from life as a public company . We hope you find this book to be a useful source of reference as you embark upon this exciting journey . kpmg .ca/ipo © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . 4 A Guide to Going Public DECIDING whether to go public kpmg .ca/ipo © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . 5 A Guide to Going Public Deciding whether to go public KEY CONSIDERATIONS 1 Why go public? Your decision to go public should follow from your longer-term strategic objectives – seeking opportunities for growth, value creation or an exit strategy . It’s a big decision . You will need to have a clear understanding of the process and assess the impact it will have on you and your company . 2 Is your company ready? You must step back and evaluate your company and its future potential from an investor’s perspective . Most successful companies invite investor confidence, have the “right stuff” and structure to provide for profitable growth, and have a solid core business to generate shareholder value over the longer-term . 3 Are the markets ready for you? Assess how the markets will receive the offering . The timing of the offering is critical . Timing decisions depend on economic factors, market conditions and pricing considerations – right up to the day the securities are offered for sale . You should expect that your underwriters will play a vital role in advising you on market readiness . 4 Assess the impact on your company and make the decision Before going public, assess the impact that this change will have on you and your company’s infrastructure, and decide whether you are ready to make the necessary commitment – before, during, and after the IPO process . kpmg .ca/ipo © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . 6 A Guide to Going Public 1 Why go public? What are the advantages Growing companies constantly search for new capital . Going public is one way to obtain and disadvantages for your that capital, but it takes time and money – and a lot of both . company? Typically, this decision is the culmination of a longer-term strategic plan for your company . Some of the advantages You may be an entrepreneur who started a business around a good idea . A successful Access to capital strategic formula has created shareholder value and now your company is ready Going public provides opportunity for for the next step . Reaching where you are today may have stretched your internal growth and expansion of your business operational and external borrowing capacity . You are seeking access to the public by offering a wider range of sources to equity markets for additional investors . raise capital . You may want to finance key acquisitions, retire existing debt, buy out Consider what your life will be like afterwards. existing shareholders, invest in research The IPO is not an end in itself – when you go public and development, or move into larger and you will be dealing with investors, the press and will more diverse markets . face more public scrutiny. Improved financial status Going public increases your company’s You may have founded a successful business and want to crystallize the value you have equity base and creates more leverage for built up in the company . Or, you may be an investor in the private equity sector, looking financing growth . It can also improve your for an exit strategy or to receive a return on your investment . You may have a succession debt to equity ratio, which can help you plan, involving you, your family or your employees . borrow additional funds as needed and may allow you to renegotiate your existing Think about the time and money . Remember that going public is only one of a number debt on more favourable terms . of financing options . Before making your decision, it is not unusual to spend some time determining whether going public is the best option for your company . Higher visibility An IPO and distribution of shares to a wider, more diverse investor base can create greater public awareness of your products and services . The visibility may give you a competitive advantage over privately held companies in the same industry . This profile may make it easier for you to expand nationally or internationally . Increased employee motivation and retention A public company can provide an enhanced stock-based compensation strategy for attracting and retaining managers and key employees . A stock- based compensation plan is a way to give employees an opportunity to share in the financial success of the company through an equity compensation component . kpmg .ca/ipo © 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity . All rights reserved . 7 A Guide to Going Public Enhanced wealth and liquidity for Increased demands on time and Loss of control the owner resources An IPO dilutes the ownership of the Creation of a public market for your shares Going public creates extensive new company . At the IPO stage, the owners increases liquidity, and provides a market reporting requirements, including can make certain that they maintain guide to calculate your wealth and net preparing and filing annual and quarterly control after the completion of the IPO worth .