Three years ago, MiX Telematics decided their JSE listing was nice but that what would really boost the fleet and mobile asset management solutions firm was a New York Stock Exchange (NYSE) listing. CFO Megan Pydigadu, nominated for the CFO Awards in both 2014 and 2015, describes the listing process as a roller coaster ride. In this exclusive article, Megan shares a number of important lessons for companies that are considering going to New York.
- MiX Telematics CFO Megan Pydigadu moves to Eazi Access Group
Close to three years ago our board took a decision to list on the NYSE under the Jumpstart Our Business Startups Act (JOBS Act) through an ADR (American depositary receipt) level 3 listing. We made the decision at a board meeting early in March 2013 and by 9 August 2013 we were listed and had raised $100 million. It ended up being an extreme roller coaster ride and at the same time was a steep learning curve. Close to the end of the process, one of our seasoned bankers equated it to giving birth. You don't tell a woman what it's like to give birth as then she will never want to get pregnant. The same applies to doing an IPO in the US!
These are some of the lessons we have learned along the way:
Clarity of why you are listing
Generally, there are a few reasons to list a company:
- Capital raise
- Gaining access to a global currency
- Global brand awareness
- Diversify shareholder base
- Inclusion in ETF trackers
- Access cheaper cost of funding.
For MiX Telematics Limited, we listed to have a global currency, to create more liquidity in our share and also for brand awareness around our company. We service large multinationals and being listed on the NYSE gives our customers and prospective customers a sense of our sustainability as an organisation.
When considering listing it is also important to ensure your market capitalisation as well as your free float will attract the right level of interest and allow funds to invest in you based on their investment mandates. Having a market cap of over $500 million and a free float of over 50% is probably ideal.
Managing the process
Running a process in the US and at the same time ensuring compliance from a South African perspective is complex. Having a detailed timeline and understanding 'drop dead' dates that can impact on both processes is critical. It is important to consult with the JSE and South African Reserve Bank (SARB) early on to explain what you are trying to achieve and to get their buy-in.
During the process we had four US bankers involved in the process, our lawyers in the US and South Africa and then lawyers representing the bankers also in the US and South Africa as well as our local sponsor in South Africa. When it came to drafting the F1 (prospectus), everyone had a slightly different slant as to how our story had to be presented. It was therefore important that we had a tight control over the story that ultimately was messaged in our F1. Importantly, before you start the process, ensure you are very clear in terms of your strategy, your long term business model and objectives.
From an accounting perspective, it is also critical to work with an audit firm who has experience in the US (from a South African local perspective) and understands the US Securities and Exchange Commission (SEC) both in terms of requirements and process. You need to ensure you are rock solid in terms of the accounting policies you apply and you need to be able to defend them and justify them. You cannot have generic accounting policies in your financial statements, but rather tailored ones specific to your circumstances.
Above: Megan and CFO South Africa MD, Graham Fehrsen, at a CFO round table event
Once we submitted our F1 for filing the first time with the SEC, the SEC came back with a letter and questions - all of which have to be cleared in a tight deadline before our prospectus could go live. If these are not cleared timeously, you can risk your financial statements used in your prospectus going stale and having to get a more recent set off accounts audited. At this point our audit firm was invaluable in assisting us through the process and understanding why certain questions are being asked and ultimately clearing the queries.
If you want to be US-listed, act like a US company
If you have gone through the effort to list in the US and to attract US investors, you then need to give them what they want. This entails quarterly guidance which is an art in itself as investors and analysts are very short-term focused and want you to beat and raise your guidance every quarter!
The other important factor to consider is meeting regularly face-to-face with investors in the US. This involves attending investor conferences and doing non-deal roadshows with our analyst banks in the US.
During our IPO listing process we were lucky enough to go through a mini roadshow before our IPO offering was effective through the JOBS Act which is known as "testing the waters". This was a great learning opportunity for us in seeing what US investors require in terms of information and ensuring we altered our reporting to meet their needs specifically around quarterly reporting. In South Africa we tend to be more focussed on half year and full year reporting and growth and margins thereon.
As a small cap business, we do not have a dedicated investor relations department or team. We therefore appointed a company in the US to help us with this and still employ them today to assist with our quarterly reporting and messaging of our results. We only employed them a week or two before we went on our testing the waters roadshow. In hindsight it would have been better to appoint them at the beginning of the process to help us navigate the US investor market better as they have your interests first and foremost at heart as opposed to our bankers, who have their fee as their first motivator.
It is also important from a compliance perspective, irrespective of being a foreign private issuer, that you comply with significant US legislation as an organisation (if not it can preclude you from certain investors), namely the Foreign Corrupt Practices Act and Office of Foreign Assets Control (OFAC).
Under the JOBS Act we have a dispensation for the first five years that we do not have to have a 404(b) certification. This is when your auditors audit your SOX (Sarbanes-Oxley Act) controls. As management we are still required to give a 404(a) certification on our internal financial controls. Even though it is a self-certification, the amount of work is not to be underestimated and a paradigm shift from a financial accounting team perspective and what is required to demonstrate that controls are in place.