CHANGE MANAGEMENT Life After the IPO – Is it any different?

It may be significant life passage but doing an initial public offering (IPO) doesn’t have to involve dramatic transition – particularly when the firms involved are already behaving like listed companies.
That’s the conclusion reached by four newcomers to the Kiwi bourse – Pumpkin Patch, Just Water International, Mike Pero Mortgages, and the biggest share float of 2004, CanWest MediaWorks.
The listing process was far from yawn but in CanWest’s case, CEO Brent Impey says it’s done little to redefine internal cultures. In fact the company chose not to dabble with the specific chemistry and autonomy that contribute to the success of each of its business units – 28 radio stations and two television channels.
Interestingly enough, the opposite is true for franchise operator Mike Pero Mortgages.
It’s too early to tell if the culture is demonstrably different, but CEO Jeff Staniland says the change of ownership has brought with it new corporate overlay. While the firm remains personality brand, the face behind that brand – Mike Pero – retains only six-percent stake in the business.
So what arguably redefines relationships going forward, says Staniland, is the realisation that many of the 36 mortgage broker franchisees are also amongst the company’s considerably wider shareholder base.
“In addition to having professional corporate owners in [Christchurch-based] Gould Holdings, the company has new board of directors and there’s much greater focus on compliance and disclosure,” says Staniland.
Like Staniland, Impey freely admits that stepping into the public domain was challenging experience. But while boning-up on the compliance front has taken time, he says it wasn’t significant business disruption.
Radio staff have already been through number of changes so Impey knew they wouldn’t be fazed by the pending IPO. Television staff viewed it as giving additional momentum to turnaround strategy that has already pulled the stations out of bit of rut.
In hindsight, he says staff reaction to the fact CanWest MediaWorks is now New Zealand company was pretty positive.
While senior management had been driven by KPIs (key performance indicators) for many years, they also welcomed the opportunity to get involved in the business through share purchase or options.

Foundations for growth
A bigger issue for Impey was laying the right foundation for future expansion. That meant looking beyond core business to growth opportunities.
During the IPO process, he remembers becoming increasingly aware of the trust shareholders placed in management and the board to grow their investment.
In an attempt to build the right foundation at the board level CanWest MediaWorks appointed three independent directors – Craig Thompson (founder of More FM), David Jackson (senior audit partner at Ernst & Young), and Sue Sheldon (Christchurch accountant).
While the last two are currently in the early stages of learning what CanWest MediaWorks is all about, Impey expects their business experience to add significantly to the board’s expertise.
“It’s essential to get the right advice and independent views. Management’s role has its own peculiarities different from other stakeholders. We brought management’s view – the need for sustainable overall business development – strongly to the table.”

Smooth transition
Despite the heightened regulatory reporting requirements there’s unanimity amongst these recently listed stocks that the evolution into public company is not overly demanding.
It was no great surprise for Greg Muir, executive chair of fashion icon Pumpkin Patch, that the company’s public debut didn’t herald cultural sea change. It was not expected.
Muir, who was formerly CEO of The Warehouse Group, says lot of the requirements demanded of public companies were already in place at Pumpkin Patch due simply to the sheer size of the business.
“We find that many firms are put off going public because they don’t want the perceived heartache that goes with it,” says Muir.
But, in retrospect, he believes the IPO process is overstated in terms of its disruption to the business.
“We sought three streams of external advice: Goldman Sachs handled the whole float, Simpson Grierson was appointed legal adviser, while PriceWaterhouseCoopers did the auditing.”
While there wasn’t any premeditated strategy to bridge the firm’s transition from private to public domain, what arguably smoothed the changeover, says Muir, was the preparatory work undertaken by managing director Maurice Prendergast.
He had already instituted the financial systems and audit processes he knew would be needed at later date. In fact, due to the preparatory work that started two years ago, Pumpkin Patch was in position to have gone to the market well before last May, says Muir.
His own arrival on the scene was also factor and helped bed down corporate governance issues, according to Prendergast.
“We made concerted attempt to have someone on the board with experience in corporate governance within listed entity. This is where Greg added considerable value.”
To Prendergast, the major organisational change wrought by Pumpkin Patch’s float – apart from rewarding many staff with shares (and options) – was experienced at the financial level.
The ability to generate around $100 million during the IPO has helped the company get its balance sheet and cash flow in order. And while private companies typically run over-geared, the IPO means Pumpkin Patch will be relatively debt-free over the next 18 months.
Around $13 million of IPO proceeds will be used to retire debt while some $40 million will help fund expansion into home markets, expansion into pre and early teen brands, revenue growth in the UK and the growth of third party retailing.
At the financial reporting level, Prendergast says the NZX makes it as easy as possible for newcomers to fit into the fold.

No added commitment
Interestingly enough, while senior management ended up with greater financial stake in Pumpkin Patch (post-listing), Muir doubts it’s done anything to raise their level of commitment to its revenue creation strategy.
While they appreciate and relish the opportunity, he’s quick to point out that many of the senior exec team already had financial stake in the business long before the idea for an IPO was ever conceived.
“We had great culture and focus before the IPO, just because the team now has shares doesn’t mean it behaves any differently.”
Despite the greater accountability-factor that comes with public listing, Muir doesn’t believe management has been constrained on the strategic front. The company is focused on selling trendy kids fashion through numerous channels including its own 150 stores located throughout New Zealand, Australia, the United Kingdom, the United States, Ireland and the United Arab Emirates.
“We’re trying to adopt the same approach – what’s the right thing to do – that we had before listing. If you do that the issues of ownership look after themselves.”
It’s possibly too early to tell, but having only had one reason to communicate with the NZX since listing – to make an upward revision – Muir doesn’t think the continuous disclosure regime is as onerous as many observers have suggested.

Gaining greater exposure
Bedding down his company’s IPO took longer than Just Water International’s founder and managing director Tony Falkenstein expected. It took six months to get the numbers together, comply with NZX requirements and ensure everything was right within the prospectus document.
But for him the biggest single impact was not cultural change or heightened commitment from staff gifted shares during the IPO process. What truly surprised Falkenstein was the amount of leverage the float process gave to relatively obscure brand like Just Water.
The biggest positive spin-off from floating the company, recalls Falkenstein was the publicity factor which gave its sales reps heightened sense of

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