Tips for Financial Reporting and How to Prep for IPOs, SPACs, and Capital Events

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A version of this article was previously published with the New Hope Network in May 2022.

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) 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.

What Trends Are Significant in the Food and Beverage Marketplace Now?

During the COVID-19 pandemic, 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.

The need for assistance during mergers and acquisition is quite high as more businesses entered transactions. Interest from outside investor activity is heightened by strong corporate earnings combined. New early-stage investment firms, traditional private equity firms, and larger food companies look to acquire popular brands and seek new product innovation.

More companies also seek 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 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 towards 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.

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 and market conditions

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

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

With the one-to-three-year timeline, a company became audit-ready, completed private company audits (American Institute of Certified Public Accountants audits), then uplifted these to public company audits (Public Company Accounting Oversight Board audits), developed systems, hired people, and more. Now that’s all crammed into a four-to-nine-month window and can lead to a rushed process with missed timelines.

While it’s possible to fit this all in a short time frame, 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?

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 transaction, contact your Moss Adams professional.

You can also find more insights at our Food & Beverage Practice.

Contact Us with Questions