Filing an initial public offering was part of LifeLock’s plan when the identity-theft-protection company hired Chris Power as CFO in January 2011. But it took the Tempe, Ariz.-based firm nearly two years to go public.
Hiring Power was part of LifeLock’s initial-public-offering preparation plan. The company recognized, like many others, that it would need a CFO with public-company experience to get its financial house in order. Lifelock (NSYE:LOCK) went public in October 2012, trading at $8.36. Today, its shares are trading at almost $15.
Even for CFOs with IPO expertise, going public isn’t easy. “It’s incredibly time consuming, energy consuming, mindset consuming,” Power says. Preparing the company requires someone to direct the entire process, including administrative duties, communicating with underwriters and legal counsel, and working with auditors, says Bo Yaghmaie, a partner at Cooley LLP. “All of that falls on the shoulders of the CFO,” he says.
Ideally, a CFO candidate for a pre-IPO company would know how to manage public reporting, how to close the books, how to position financial results to Wall Street and, most importantly, how to deliver accurate financials on a timely basis.
Delivering reliable numbers is a critical skill for CFOs at public companies, and it’s often a distinguishing factor between private company and public company finance chiefs. “There isn’t a penalty or consequence when a private company misses numbers. For a public company, it can be punitive to miss numbers,” says Tim Keating, CEO of Keating Capital, which specializes in pre-IPO investments.
Private-company CFOs can take a company public, Keating says. In some ways, they may be the best person for the job because they already understand the company. But many pre-IPO firms would prefer to hire a CFO that has some experience with running a public company, he says. “It’s real time. There’s no room for error or missing numbers,” Keating explains.
For a smooth transition, the outgoing and incoming CFOs often overlap for a period of four to eight weeks. In other cases, the incumbent CFO might get a title change. “Perhaps he [or she] was more of a controller than a full-blown, public-company-caliber CFO. In such a case, [the CFO] might get a new title of controller or [vice president] of finance,” Keating says.
The job requires finance chiefs to do more than deliver and report on the financials, Power says. Because CFOs are central to the preparation process, they have to play a more visible role at companies preparing to list on the public markets. During the IPO process, along with chief executives, CFOs become the face of their firms. They spend most of their time outside of the office, and investor relations becomes a top priority. “In the first year of being public, you need to make sure that investors have a good sense of the company,” Keating says.
Lifelock’s Power prepped for an IPO by cutting the close process by more than half, going from 10 days to four or five. The company also held mock earnings calls to practice for the big event. Power had LifeLock’s investment bankers grill his team with questions until everyone was “comfortable with the cadence of being a public company.”
CFOs can make going public easier by focusing on two things: IPO execution and investor communication. But no matter what, “it’s a long, grueling process,” Power says. “It’s exhilarating, but it’s exhausting at the same time.”