The Path to IPO

A deep dive on learnings from a transformational business journey in taking Hipages to IPO, with Melissa Fahey.
Dan Spencer
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October 8, 2021

Melissa is certainly not afraid of a challenge. Her story starts with PwC before spending 11 years overseas in private equity and consulting. After her return to Australia, along came an entry opportunity into a hands-on CFO role focusing on business improvement, change management, and driving growth organically and inorganically.

Five years later, Melissa took on her current role as CFO and COO of Hipages Group. In this role, she has been responsible for a transformational change project driving top-line growth, delivering strong profitability and positive operating cash flow, and taking the business to Hipages to a successful IPO in record breaking time.

D: Your background isn’t what I’d call a traditional route to an ASX CFO. What experiences early in your career contributed to your success in your role today?

M: PwC was a great training ground that instilled really good disciplines and a professional work ethic. Definitely, my time in Private Equity was also so valuable.  I joined a UK PE firm initially as the UK Risk Manager. I set up the due diligence procedures and policies and advised the Investment Committee on investment proposals. I performed a review and recommendation on the Venture Capital portfolio meeting with management and reviewing operations. A year after joining, I then put my hand up for an Investment Executive role within the Mid Market European Fund which covered all aspects from deal origination, all forms of due diligence, completion, and then portfolio management. When you are in a role like that, looking at businesses across all different sectors and industries, you just get a real knack for seeing through the numbers. You can understand how businesses are performing, where they are not performing, and what needs to happen to turn the business around to drive growth and the required PE return.

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D: Congratulations on the success thus far at Hipages Group.
I understand that prior to its successful IPO, the business undertook a huge transformational program which you led successfully. Can you tell us more about this, and why it was so important ahead of the IPO?

M: IPO aside for a moment, in my experience often businesses at earlier stages/start-ups are focused on driving growth and increasing share of TAM. This can be at the expense of efficiencies, investment in middle and back-office, and then as a result the bottom line. At some time they need a reset.

The transformation project was required to stop and reset and to ensure going forward our business was optimised, efficient, and delivering the required unit economics.

We looked at both our top line and product offering and also introducing efficiencies across all functional lines. 

We initially had two product offerings, a transactional product and a subscription product.  We did a deep dive into our customer cohorts and ROI and LTV analysis. Our subscription product was a better product both for our customers and also Hipages and we made the decision to move to a subscription-only product offering.  94% of our revenue is now recurring which gives us far greater certainty and predictability. This was really helpful in our ability to put forward a forecast in our prospectus especially with COVID as a backdrop.

We did a lot of customer research and introduced new features and flexibility to the subscription product to make it a new and improved version.

We also looked at all our processes, introduced a lot of self-service and automation, and implemented marketing efficiencies whilst at the same time invested in our brand.

As a result of this transformational change project, we have driven strong top-line growth and increased profitability by $14.8m over two years from a loss of ($3.1m) in FY19 to an EBITDA profit of $11.7m in FY21.

This was really important for the IPO, to be delivering strong revenue growth, to have completed the business transformation, and to be operating efficiently with proven unit economics and on a path towards 100% subscription revenue.  Our business was ready for the capital structure that would allow us to further drive growth with our operational leverage evident, therefore also delivering strong profit and profit margins. Our move to a subscription and SaaS platform allows us to further expand our product offering, all of which is important in driving shareholder value and returns going forward. 

 

D: When we consider fast-growth tech businesses that are looking to IPO, what are the benefits and reasons for doing it versus an alternative liquidity event? 

M: Obviously, access to capital and the ability to grow your business, both organically and inorganically. There are other forms of liquidity, however, for Hipages Group, to be able to raise the required amount of primary funds to provide us with a really strong balance sheet and capital structure to fund our strategic initiatives and secondary funds to be able to liquify a return for some of our earlier shareholders has now given us the financial flexibility to drive growth. 


D: What advice do you have for founders and CEOs who are thinking about an IPO path?

M: The business really has to be ready for it. A lot of businesses aspire to IPO but getting the timing right is really crucial and can be the difference between a successful IPO or not. In terms of being ready, I mean in every aspect.  It is so important to have a clear strategy and understanding of the market opportunity and how you plan to execute on this.  What you are prioritising and what you are putting in the parking lot.  

When there are a lot of opportunities, the mistake businesses can make is trying to do everything at once, often without success.

"The key is being really ruthless in your prioritisation, knowing what the opportunity is and what you're going to tackle over a three to five-year timeframe.  This also allows you to communicate clearly your strategy to the market which is really important."

Aside from the strategy, I would advise on these aspects: 

  • Experienced management and executive teams: Not all of the Executive Team need to have listed experience however having some experience within your team is definitely preferable. The Exec team also needs to be ready for life as a listed business.
  • Culture: Tech businesses are great to work in due to their dynamic nature and fast pace. When you are a listed business there will be changes especially from governance and the level of information you can communicate. It is important to manage and balance this so you do not stifle the culture that has driven growth to date.
  • Good forecasting capability: This is crucial. You need to really understand your data, the key drivers of your business. There will be increased scrutiny over your business. 
  • Reporting structure: In a listed business, there is a massive step up in terms of the quantity, depth, and quality of reporting. You need to have a strong ERP system and data analytics. 
  • A strong finance team: Again, preferably with some of those key members who have been responsible for reporting in a listed environment 


D: As the CFO and COO, how did your role evolve from pre-IPO to post-IPO? 

M: The ramp-up in reporting as a listed business is something that can’t be underestimated. Also, the portion of your time spent on investor relations. I’d say 30% of my time is spent on investor relations. You need to make sure that you have a really strong team to support you and who at times can look after BAU. 

Whilst we completed our IPO in a short time frame of under four months, prior to this we did spend a considerable amount of time understanding our growth drivers and aligning our strategy. Before the IPO we were capital constrained.  Post IPO we now have the capital structure to really drive growth, execute on our strategy, increase our share of TAM and drive shareholder value.


D: When the decision is made to IPO, getting ‘’IPO-ready’’ becomes critical. How does the role of CFO make that happen? 

M: The role of a CFO is crucial and a lot of the work falls on the CFO and Finance team.   In terms of choosing your advisors, investigating accountant and DD parties, IPO project plan and process through to ensuring your reporting, data analytics, and forecasting functionality is at the required level and making sure you have the required level of listed experience in your team.

We built a new forecasting model a year prior to IPO to ensure we were happy with the level of detail and the accuracy of the model. Our forecast model is now engrained in our business.  It helps us make business decisions and we track our performance daily, weekly, and monthly to different degrees.  It has also been integral in allowing us to be agile and implementing and tracking COVID sales and retention initiatives.

We also optimised our ERP leading up to IPO and we still do this on an ongoing basis to drive further reporting efficiencies.

Data and analytics are also so important and one of the key roles that I introduced was a Commercial Manager.  This role is a huge support to a CFO given the importance of data, commercial analytics, customer cohort analysis, and LTV, forecasting, and reporting of your key drivers.  Being able to communicate those key drivers is essential. The role of the CFO is no longer just reporting the numbers.  It is about understanding the numbers and using the numbers and data to be able to communicate the strategy, direction, and opportunity of the business.  This just becomes all the more important when getting “IPO ready” and then subsequently as a listed business.


D: When a business decides to IPO, what impact does that have on the culture and people within an organisation? And additionally, what are your recommendations to founders and CFOs to minimise disruption? 

M: To be honest, that is something we really worried about. It also depends on your industry, type of culture, and team, how much they understand about the listed environment and what it entails. There is a lot of governance that comes into play when you are a listed business. 

As part of our culture, we have always been big on communicating with our team. It is important that your team understands the company’s strategy and how the business is performing. Since listing we have had to adjust our comms due to continuous disclosure obligations however through our Town Halls we have found a way to be able to communicate how we are delivering on our strategic initiatives and company goals.

"It is important not to stifle the culture that has driven growth to date."

The other important thing to keep in mind is that a lot of your team may have been motivated by and looking forward to the goal of achieving an IPO. When you list your business, you need to take your team on the next journey and the next growth opportunity.

In terms of governance, there was a lot of work involved in ensuring our internal processes were set up for continuous disclosure obligations and restricted trading.  This came with a lot of training and well-documented and communicated internal procedures. 

The outcome was that our culture strengthened. This year, we ranked second place in WRK+’s Best Places to Work list. We also had an outstanding response in our employee Net Promoter Score with 97% of our people willing to give extra effort to help achieve business goals and 93% stating that they would recommend Hipages Group as a great employer.


D: Quite often a Board Member or Founder requires someone with previous ASX experience. I'd love to get your views on that and if you agree?

M: It's a tricky one. As a CFO if you haven’t been through an IPO then it’s a massive journey and learning curve. The workload that’s involved is huge and you need to make sure you are ready for it. I have been through two IPO journeys and the second time around I definitely benefited from having gone through the experience once before. Having been in that situation I can appreciate the Board requesting that experience. 

Whilst you do have advisors around you that help you through that journey, as the CFO, if you have not had the experience in a listed business, then it's crucial that your Financial Controller has the required level of experience. It is not just about the path to IPO however it is also about reporting obligations in a listed environment.

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Dan Spencer is Think & Grow's Partner in Executive Search, placing CFO's across ASX settings and high growth businesses looking to list.

If you’re on the hunt for a CFO or you’re an aspiring CFO looking to make your next move, we’d love to hear from you.

Dan Spencer

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