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Tips for financial reporting and how to prep for IPOs, SPACs and capital events – article

Major financial milestones can be daunting for new and growing food and beverage brands, but knowing how to prepare for these events can help put your brand into a position of strength.

April 15, 2022

4 Min Read

With record sales in food and beverage during the COVID-19 pandemic driving increased interest from private equity groups and outside investors, companies need to ensure their financial reporting keeps pace with company growth. This is especially true when due diligence from a potential investor or buyer approaches.

Managing the financials for a new or growing food or beverage business can quickly feel like a runaway train without proper systems or a growth roadmap in place. Additionally, more companies find public offerings (IPOs) and special acquisition companies (SPACs), which require even greater financial reporting—to be attractive fundraising options.

Guidance from a trusted financial partner can help companies work through evolving financial reporting requirements throughout their life cycle and prepare to raise outside investment, whether in the early stages of growth or a mature stable business.

Below, learn how recent trends may impact your company, major considerations for transactions and how selecting the right financial advisor can help a company enhance its financial potential.

During COVID-19, food and beverage trends shifted toward convenience and delivery. If a company didn’t have a strong digital platform for e-commerce, it had to make investments and reassess its distribution channels. This was often through Amazon, but other avenues for distributing products online became available as new specialty delivery services emerged. 

Many businesses also shifted production of products from food service to retail, and adjusted product offerings based on changes in consumer eating and cooking brought on by the pandemic.

Through all of this, acquisition interest in natural products companies has continued. This has meant that as more businesses enter transactions, the need for assistance during mergers and acquisition continues to be high. Interest from outside investor activity has been heightened by strong corporate earnings combined. New early-stage investment firms, traditional private equity firms and larger food companies are all looking to acquire popular brands and seek new product innovation.

More companies also are seeking corporate sustainability reporting as environmental, social and governance (ESG) issues become a strong consumer focus.

With the increased interest around transactions, businesses should have a strong foundation for how they plan to navigate a deal and thoroughly assess their options, especially as the market for IPOs and SPACs is at record pace.

Where Should a CEO or CFO Start if They Want to Access the Public Markets Through an IPO or SPAC?

It’s key to assess your company’s readiness first and then build a plan towards a successful IPO/de-SPAC before engaging a banker or discussing in earnest with your board of directors (BOD).

With current valuations, bankers and BODs often push companies toward a public exit before they’re actually ready. Companies can lack the needed structure and formality in major areas, which leads to a painful process and frequently results in material weaknesses, fractured timelines and distraction from running the business.

Recently, there’s been a frenzy of IPOs/SPACs because of the valuations that started back in Q2 2020, but SPACs started to cool during summer 2021—partly due to the warrant restatement issue so many faced in Q2 2021 as well as market conditions.

Many Companies Now Go Public at Earlier Stages. How Does that Change the Preparation Process?

Historically, companies prepared for an IPO over one to three years, now they sometimes try to go public in six months or less. Earlier stage entry can be a double-edged sword because it’s sometimes less complex, but there’s more to do in the process.

Withing a one-to-three-year timeline, a company could become audit-ready, complete private company audits (American Institute of Certified Public Accountants audits), then uplift these to public company audits (Public Company Accounting Oversight Board audits), develop systems, hire people, and more. Now, all of this is being crammed into four-to-nine-month windows, which can lead to a rushed process with missed timelines.

While it’s possible to fit this all in a short timeframe, the risks and costs are high. Companies that thoughtfully built their company to go public, can do so in six months; companies that don’t have anything in place, including an audit, struggle to go public earlier than nine months—there are always exceptions, however.

Many Companies Are Told a SPAC Transaction Is Faster and Easier Than an S-1 IPO, Often Taking About Four Months to Complete. Is That True?

S-1 IPOs and SPAC transactions are different. SPACs can be faster, but it’s a race to complete the de-SPAC, and then the company isn’t actually ready to be public.

SPACs aren’t necessarily easier in absolute effort; they’re essentially an IPO, merger and financing all in one. If you add in the compressed timeline, they can be much harder.

What Might Drive a Business Initially Pursuing a SPAC Transaction to Change to a Traditional IPO?

In this process, many businesses become concerned about redemption rates and realize they could use extra time to get ready for an S-1 IPO and go public with an equal or better valuation.

Some businesses hear that private investment in public equity (PIPE) liquidity is constrained, while some dual track their process to go public or prepare for a strategic acquisition.

We’re Here to Help

To learn more about preparing for an IPO or SPAC or for guidance during a transaction, contact your Moss Adams professional. At Moss Adams we are a fully integrated professional services firm dedicated to assisting clients with growing, managing and protecting prosperity.

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