John Roberts, founder and chief executive of AO.com , this week shared lessons from the AO.com stockmarket flotation with an audience drawn from the ecommerce and multichannel industries at IRX 2015. Here are his top 10 learnings from his company’s IPO, viewed through an AO.com lens. “We like to think about things differently,” said Roberts. “How do we make things better and challenge things? During the IPO process I thought of myself as the customer through that process, asking how can we make things better for us?”
Be clear about why you want to do an IPO
“You’ll meet a huge amount of bright people through the process that will challenge the rationale about why you’re doing it. We were doing it to fuel growth, and international growth and accelerate that process. Just be very clear about why you’re doing it.”
Understand what will be expected of you on the other side of the IPO
This means understanding what the bankers, city, investors, analysts, will want of you. “Be very honest with yourself about whether you’re willing to give it: if you’re not you’ll run into problems very quickly. They’ll be clear about their expectations and what they want. Some of it is good, some is bad and some is indifferent.”
When? Timing is everything
“It’s not just a case of a dash to do an IPO. The best things appear spontaneous but have a huge amount of planning behind them. We ran a process of ‘preparedness’ for about 18 months before we did the IPO. We were ready to go for about nine months. Then there’s a huge amount of patience and waiting until the timing is right. Be clear on what conditions constitute readiness. From the point of us being ready to saying we’re going to do it, the whole process took five to six weeks. It all looked like it happened quickly but everything had been ready for a good few months before that. It won’t be an accident and if it is, it shouldn’t be.”
Do your homework
“You need to get out there and learn from as many people as you can. There hadn’t been a huge amount of IPOs before we did ours, but we pretty much went and spoke to everyone who’d done one in the five years before ours. We spoke to people who had done well, others whose IPOs had failed. It takes a huge amount of perseverance, shoe leather, early mornings, late nights but nothing great is achieved without the effort.”
Who do you look like?
“The City is reasonably one-dimensional around this: and they want metrics. If you want to get on a conveyor belt, they’ll put you on a conveyor belt. If you want to be different and present yourself differently then it’s a question of how and why? Are we an electrical retailer or an electrical retailer with a high growth international strategy. It’s important because the valuation associated with the two is completely different.
“Did we want to look like Amazon or Asos, or Comet and Currys? We then had to do a huge amount of homework on why our business works in that way and why it’s not like this business and what the catalyst of change will be.”
You do not make the rules
“You need to remember that most people do an IPO once. We used to joke that we would turn up Mr Green in a green suit with a green hat and green coat, with no idea of what’s going on. The people you spend a lot of time with around this process play the game every day. Not only do they play the game every day but they make the rules. They have their own language for it, so you can’t understand it. If you ask them to explain it like a three year old, they can’t. When they’re talking double dutch in their own language don’t just assume they know what they’re talking about. Never lose sight of the fact that it’s your IPO: you need to take as much ownership o the IPO as you can. You don’t make the rules, but you have to understand them.”
Pick a great advisory team – and understand why it’s great
“Reputation doesn’t always count for a huge amount, big isn’t always best. We went and asked lots of questions of people who’d done this process and who’d done a great job. It’s the actual individuals who make the team great – be picky about which people will be working on your deal – don’t go for the company.
“They tend to send a team of bright high-flying people to make the pitch and wow you and then you have someone different on the job. When they’re recruiting you, you get the best, when they start it you get a load of juniors.
“It was very public that we paid some large fees on our deal. We had Rothschilds as an advisor on our deal. We paid them £12.5m for that. I’ve never been more delighted to write a cheque of that size. Their advice was fantastic and invaluable at some really key moments. I think they earned their fee – and that generally the best thing in life tend to cost more, and advice is no exception. The guys who add huge value tend to do it in small bits – they might not work 18 hours a day, but they will add value massively. It isn’t a guide that the more you pay the better the advice, but if you nickel and dime people on their fees, the chance of getting the best people and the best advice probably is lower, just extremely logically. So pick a great team and don’t be prissy about the cost of it.”
Allocation of shares: ‘one of the most pivotal things in our deal’
We’ve always been very careful about who our investors are and what their outlook is. Now that we’ve been listed for about a year, there are about 10 shareholders in our business that account for about 95% of the shareholdings. They all take a long-term view of our business – in our business they kind of have to. We took a very active role in who we were going to allocate our shares to in the IPO. You want the right shareholders to think about our business.
“You have to get involved in that really early, know how those shareholders will behave on the other side. You find out by looking at how they have behaved in the past, finding out what other businesses they hold significant stakes in, and talking to those businesses about how they behave. It’s a lot of shoe leather, a huge effort, but for us it’s been hugely valuable and we expect it to be more valuable as it goes on.
“The banks will hate it and they hated it in our deal. Our IPO was 11 times oversubscribed because we concentrated it in where we wanted it to go, not the banks and their mates and the hedge funds who want to make a quick buck.
“How do they behave, what’s the allocation, what’s it like when it all gets tested? We didn’t even know we needed the allocation right until they told us we couldn’t have it – then we knew we really needed it: it was intuitive but became critical at the end of the deal.”
Make sure you’re ready
“Make sure the business is really ready. The process will identify just about every crack in the business. Imagine taking the top six senior people out of the business for a year. How will it perform without those people in it? Start the process, run through it and you’ll be out of it for six months to a year – you can convince yourself that you won’t be, but you will be. You do the IPO, arrive back in the business under more scrutiny and pressure to see what’s happened. Be crystal clear and invest well ahead of time to make sure the people running the business without the top five to six people in it are capable of doing it – if not, you’ll . Make the investment – if you’re not prepared, you’re probably not in the right place.”
“It gets a load of bad press but it will be one of the most stimulating, intellectually challenging experiences you’ve ever done. You’ll turn up to investor analyst sessions with 10 extremely bright people on the other side of the table who’ve thought of questions to ask you.
“You have good days and bad days in it but smile through it all, it’s fun. We had a lot, a lot of laughs doing it. In some of the bad days, you have to find humour in it – and it is fun. When you have the tough days, just smile, remember noone died – even when you do a profits warning. When you’re having fun just remember that you’re the one that’s driving the dream, dreaming the impossible and don’t listen to the dream stealers. There’s loads around. The best way is to smile, laugh and have fun.
“I wouldn’t change anything. What we set out to do we’ve achieved. We’ve been able to expand internationally in a way we wouldn’t have without it and we have a band of shareholders in our business and we are delighted.”
One questioner asked how much was raised in the IPO and what the company did with it. Roberts said it brought about £60m into the business, which has always been debt free. “When you’ve got no cash noone will lend you any, you get shit rates on everything, and when you’ve got loads everyone wants to lend it and don’t need it. You get better finance terms and supplier rates. By bringing it all in, you don’t need it, so we pretend we haven’t got it.
“It’s there as an insurance. We don’t want to throw it around. It gives us the ability to expand internationally on the right commercial basis but it enables us to be bolder, faster. When you go into something and you can’t afford to lose, you tend to lose. When you can afford to, you tend not to. It allows you to make the right commercial decisions. We’ve still got most of it and we don’t know what to do with it.”