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Making the most of the moment when your IPO gets delayed

By Carl Stegman, Senior Vice President, Private Company Practice Lead, Fidelity Stock Plan Services

You’ve spent months planning for your IPO, and the big day is drawing closer. Then comes disappointing news: You’ll have to put the IPO on hold—because of a bearish market or some other event beyond your control. The bubbly will have to stay in the fridge for a while longer, but there’s still one thing you can celebrate: A delayed IPO can be an opportunity to make the transition to “public” even smoother for your organization, its people, and shareholders. 

It’s an opportunity to use your now larger pre-IPO window productively, address any lingering concerns, get a head-start on other IPO-related needs, and take some stress out of the process. Not sure what to do with the unexpected extra time on your hands? Here are three ways you can use your time wisely.

1. Complete your vendor conversion.

Selecting a vendor for equity administration is an essential part of your IPO strategy. Just because your IPO has been put on pause, that should not stop you from converting your plan. Continue your due diligence to select an administrator and complete the implementation. By moving ahead on vendor conversion, you will remove the stress and potential risk that can come with running two conversions simultaneously—equity administration and securities.

Conducting your vendor conversion sooner can give the administrators of your plan more time to learn vendor operating platforms and to build confidence in running your program. And it ultimately will minimize the stressors that can come with a security conversion. For example, having all of your indicative data transferred before the IPO simplifies the private-to-public process. The extra time also affords you the opportunity to ensure that your data is clean and accurate before the IPO. Having controls in place ahead of time will also minimize friction during the IPO conversions. (Think SOC 1 for audits and ISO 27001 for data security.)

One other major benefit for early vendor conversion: Completing the transition sooner rather than later can give employees more time to become familiar with your vendor’s participant portal.  Giving them access to credentials and logins now may mean less disruption for them later. 

2. Provide education and financial well-being support for your employees.

It’s difficult to overstate the culture shock that an IPO can bring for your workforce—and the amount of time and effort needed to help employees make an effective transition. An IPO requires a comprehensive—and constant—communication effort. For many individuals, having to learn, make decisions, and take action during the IPO can be overwhelming. At this point, you may have immense knowledge on the topic of publicly traded securities. But for many of your employees, stock ownership, investing, and regulatory requirements may represent entirely new territory. 

While your IPO is on hold, use the extra time to build a robust, relatable education program that helps employees better understand what the upcoming IPO will mean for them and for the organization as a whole. When the IPO finally occurs, be ready to focus your employee communication plan specifically on decisions that directly relate to the plan going public. And make sure you have crafted strategies, tools, and messages that take into account the diversity of your workforce. 

For example, do you have a younger employee population that may be dealing with personal debt management needs, such as student loans? What kind of impact might the IPO have on their financial picture? And what kind of support will you provide for executives who might have concerns about their potential new wealth? Be sure to use your extra time to identify programs, solutions, and vendors that can support the overall financial well-being of your employees.

3. Finalize—or establish—your company’s compensation strategy.

The compensation picture can become vastly more complex once you become a publicly traded company. Use the additional time to finalize design and implementation of your compensation strategy. There are plenty of details involved in the process. Ensure that you have not overlooked any of them. 

Key considerations include assessing the current and expected grants to executives—to make sure that equity levels are appropriate and as intended. You will also want to establish an equity design for post-IPO grants. As you move forward, it’s important to understand the effect that a restructuring or IPO will have on current employment agreements—specifically the impact on equity awards. Verify that employment agreements do not create any potential obstacles as the company transitions to public—such as triggering a change-in-control or acceleration payments. 

Another essential component will be a framework for how board members will be compensated once the company becomes public. And don’t forget to think beyond the people who are part of your organization. Establish processes and design rules that address the gifting of awards and securities by employees to their family members.

One more thing to focus on while you wait for the IPO to go forward: an employee stock purchase plan (ESPP). Planning, designing, and implementing the ESPP before your IPO can bring several potential benefits—for the business and its employees. For example, a post-IPO ESPP may require shareholder approval, given that an ESPP can be tax-qualified under Section 423 of the U.S. tax code. If you approve an ESPP while your company is still private, you can launch it after you go public, helping all participants share in the potential success of the offering.

Carl Stegman is senior vice president, private company practice lead for stock plan services at Fidelity Investments.

Fidelity Stock Plan Services, LLC
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not
be considered legal or tax advice. Consult a tax professional regarding your specific situation.
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