It’s been a while since we last had an IPO. In our market, they are seldom and few in between. However, when the signal that ZAFFICO may be seeking an IPO in 2018 was issued, we at FiZ got extremely excited because our firm would finally have an opportunity to track an IPO in Zambia.
But first, it is important to understand what an IPO is. IPO stands for Initial Public Offering. This is when the management team and investors in a company decide to make a bold move and issue a stake in the company to the public. Sadly though, employees of ZAFFICO were not enlightened on what the mechanics of an IPO were so they have no reason to worry. For now. Furthermore, we have observed there is a common misunderstanding of what an IPO on LuSe actually means. Therefore, the placard carry protestors concern should not be whether the firm lists on LuSe but whether they are able to manage working capital.
Contrary to popular belief, an IPO does not mean that the owners are giving up power in their company. Far from it. The decision system that leads to an IPO requires a thorough introspection of what the company’s desires are. This includes the desire to raise funding for growth projects (CAPEX initiatives when debt is less of an option), the desire to scale up operations, the need to reward patient and loyal employees of the firm who signed on no pay but put in the hours for a ‘small’ chunk of the company among other reasons.
Peggy Klaus in her Harvard Business Review article “The Right Way to Run an IPO Road Show” provides some insight into what to do and what not do as the months tick away towards the IPO. According to her, in this unpredictable economy, the timing of an IPO is very important. Astute investors require a bankable story from the IPO road show that is not only engaging but is also delivered well through the investment hypothesis that is being sold.
I personally recall the last IPO I had interest in. When Airtel dazzled us with colorful prospectus and engaging adverts that was the run up to the IPO. Many people were sold that it was a solid investment. The IPO roadshow achieved its intention. Mission accomplished. However, one thing I do remember is that Airtel spent a lot of time on the road show. This allowed them enough time to influence the belief system of potential investors. Therefore, it is important for the CEO of the firm seeking an IPO not to procrastinate.
In our society where people are so busy with their day to day activities, many may not have time to go through lengthy prospectus. That is why it’s important that during the road show, the company engages a team that not only has a deep knowledge of the business but is equal to the task of delivering short and crisp speeches about the company that would make one consider investing. This is crucial because of the infrequency of IPOs in Zambia.
The task will be even harder when State Owned Enterprises (SOEs) begin their roadshows. They have the associated stigma of many not knowing how they create value. The public often make assumptions and it is through the roadshow that they can take advantage to finally sell their businesses as an invest-able product. Should the ZAFFICO IPO happen, this would mean that people would finally get a chance to understand that business’ value chain and get insights into their historic financial statements and be able to assess its financial health.
Engaging with financial analysts will also be important as they can provide a good avenue for the company to bring visibility to their intentions. Being able to follow the narrative of the company enables the investor to be able to decode the nuances in the numbers that are presented by a prospective IPO firm. This inevitably influences the investor’s belief system and enables him or her to make a sound decision when making the investment.