Bonus Episode: Inside The IPO Process with Tom Cowan | TDM Growth Partners

HOSTS Alec Renehan & Bryce Leske|29 September, 2020

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

As a retail investor, we often don’t get a lot of insight into what goes on behind closed doors when a company goes from being private to public, and is listed on the stock exchange. It is critical to get the process right, to set up a company, and its investors, for long-term success.

Over the next two episodes we get a view inside the process TDM Growth Partners use when they help companies through an Initial public Offering. It’s fascinating. To help us through it, we sat down with Tom Cowan.

Tom is a co-founder and member of the investment team at TDM Growth Partners. Tom, alongside his fellow partners Hamish Corlette and Ben Gisz’s, has grown TDM from $1m to over $1b in assets under management. Over the years, Tom has sat on the board of several ASX-listed companies and was the youngest Chairman of an ASX200 company.

TDM has helped some notable Australian companies through the IPO process – Pacific Smiles, Baby Bunting, Tyro Payments – so have plenty of experience to share.

We hope you enjoy this two-part series as much as we did recording it.

For more information on TDM Growth Partners, and to receive their information-rich quarterly email, click here


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Bryce Leske: [00:00:57] Welcome to another episode of Equity Mates, a podcast where we help you learn to invest in 45 minutes or less. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going, bro? [00:01:11][14.6]

Alec Renehan: [00:01:12] I'm very good Bryce very excited for this episode. We are going to be unpacking IPOs. Initial public offerings. Yes, with one of the best in the business from one of our favourite funds in the business. Yes, I'm very excited to get stuck into this episode. [00:01:26][13.8]

Bryce Leske: [00:01:26] Absolutely. It is our pleasure to welcome Tom Cowan to the show. Welcome, Tom. [00:01:31][4.6]

Tom Cowan: [00:01:31] Thanks for having me. Great to be here. [00:01:33][1.4]

Bryce Leske: [00:01:33] So we've got Tom on to, as I said, unpack all there is to know about the IPO process from the point of view of TDM growth partners. So Tom is co-founder and member of the investment team at Tedham Growth Partners, alongside his fellow partners, Hamish Cole and Ben Ghiz, Thomas Green Tedham from one million to over a billion in assets under management. So pretty impressive. Over the years, Thomas sat on a number of several ASX listed companies and was the youngest chairman of an ASX 200 company. So a lot to unpack there, Tom. But firstly, can you start us off by telling us a bit about Tedham? [00:02:09][36.6]

Tom Cowan: [00:02:10] Yeah, I'd love to. Stadiums Bengi in 15 years. And really what we're about is investing around the world in both public and private businesses. Try and find those best management teams with those businesses with amazing growth profiles and own them for long term, really big business owner. And in fact, if you look at what we do, you know, I think on average, 40 percent of our portfolio, we've owned business for 10 years. So when I say long term, I mean long term. When you think about what we do, I mentioned it before, being a business owner is absolutely fundamental thinking and behaving like a business owner and taking that long term perspective. And the other thing that is super important to us, which I think doesn't get played out enough for most investors, is people and culture. We're obsessed around finding the right people to run those businesses, make sure we're aligned. And when you found the right people, special people do special things. And that's what we've found time and time again. We never made mistakes around the people. So they really some of the key things that we look look to and obsess about, so to speak. [00:03:16][66.0]

Bryce Leske: [00:03:17] So, Tom, for our listeners who haven't perhaps join the dots, we did have your brother, Ed Cowan, on the show. Great interview, talking about, you know, everything that has to offer and a bit more about your investing process. So if you haven't listened to that episode, we suggest going and listening to that again. [00:03:31][13.7]

Tom Cowan: [00:03:31] Yeah. Now, you can get much more details there about TDM in terms of how we approach things. It was great to have it on the show. Actually, I've sort of lost my name for about five years when he was playing cricket for Australia and was just introduced at board meetings or other meetings as head count brother. And as I like to say now, mate Candlebox, [00:03:49][18.3]

Bryce Leske: [00:03:51] I love it. We'll go and check that out. It was a great episode. [00:03:54][2.7]

Alec Renehan: [00:03:54] Now, Tom, one of the reasons we're particularly excited for this episode is we're going to be talking about IPOs, but we're not just going to be talking about them in abstract terms. You've helped some pretty notable companies through the IPO process. Pacific smiles, baby bunting, tyro payments. So we're keen to unpack the IPO process and talk about the experiences that you've had with some of these companies. There are a lot of people are aware of Bryce in particular is the number one fan of baby bunting in Australia. Anyone can challenge in one of these, number one and number one ticket holder. I guess we want to approach it with a bit of a timeline structure. There's a lot of work that goes in before the stock start trading on the ASX. So to begin with, how far out from actually listing on an exchange does the company begin preparing for an IPO? [00:04:44][49.6]

Tom Cowan: [00:04:44] We always say it's a two year process to get ready for IPO. A lot of people that you see looking to list a business do that far quicker. But in our view, to make sure your IPO ready and that you are going to be successful as a public company. We think it's a lot of work over two years to make sure you're operating [00:05:03][18.5]

Alec Renehan: [00:05:04] in that two year period. We've sort of broken it up into the 24 months out to six months out period and then six months to go live, period. So if we start with the at the beginning, 24 months out companies growing, it's got good prospects that decides that it wants to go public. What are some of the things that a company and company executives need to start thinking about and they'd start doing to prepare for the IPO? [00:05:28][24.4]

Tom Cowan: [00:05:29] So you've really got to look at a number of aspects of a business. You know, we always start at the top. So ensuring that you have the right board with the right chairman and that you're ready to have a very successful board functioning well is definitely a good place to start. And obviously the management team is the most important. So making sure you got the right CEO with the right executive team. So there are two key areas that we spent a lot of time on. To make sure that we win, when you think about the business from that particular point in time and you want to grow at multiples over many years from there, that you've got the right team to help scale the business from that particular point. And often, particularly with both board and management team, the people that were successful in the first part of their journey aren't necessarily the people that are successful for the journey as a public company and making sure you've got that team. There's also a lot of effort around systems process and IT where you want to make sure that the business is coming from a back office perspective before you embark on the on the IPO process. [00:06:34][65.7]

Bryce Leske: [00:06:36] Tom, I want to pick up on what you mentioned there about the board and the executive team. To me, that's somewhat surprising. You know, you think about you've built a company to sort of two 300 million revenue and then you're going to come in and say, actually, your board and exec are not great. Is that often the case when this sort of thing happens for an IPO? And what are you exactly looking for in the CEO or the board or the exact team to sort of comfort you that going forward they are the right people? [00:07:03][26.8]

Tom Cowan: [00:07:03] So business is obviously different. I would say most businesses probably don't actually have a board at that particular point in time as a private business. What we've found the most successful businesses we've been associated with do have a board, and they've actually already thought about that prior to us investing. But ensuring that that is the right board for the next stage is certainly a very important part of the process. In terms of the management team, once again, it does, you know, depends on the specifics. I'm not saying you don't have the management team. I would say it is a reasonably common occurrence that there will be new members to the executive team in that period to ensure that you've got the right complete team to scale to many times your size. So obviously, the ideal is you have the an awesome board and also management team, but that's, I would say, a very rare instance [00:08:00][56.7]

Alec Renehan: [00:08:01] if we can dig into that a little bit more. I'm interested to know what the underlying cause or like what the underlying reason for that is and what actually changes when a company goes public. Because I think for a lot of people thinking about IPOs, it's just a point in time where the shares move from privately owned to publicly owned. But the operation of the business doesn't really change. But that's obviously not the case. If there is, you know, big changes need to happen and this whole process needs to go through. So what's actually changing for the company itself? [00:08:29][28.4]

Tom Cowan: [00:08:30] No, I'd actually say the way you described is the way we think about it. So it's actually not driven by the IPO. It's driven by what will help take the business to the next stage. So the fact is, you're right, you're going from private to public. And it's purely a transition from a legal perspective. Our view on this IPO process is you're doing things that ensure that the business is successful. As it happens, the private and public transition is common at that rough size. And so it's not necessarily the going public part that is the driver. It's about how do we take that business from two or three hundred million revenue to a billion? And these are the types of things that we think you need to achieve that. And as that happens, you're changing from a private to a public setting. There are some nuances around that. Obviously, as a public company, you have a whole raft of things with shareholders. You need to be very good at communicating very clear and communication with shareholders. Are there are things like that that are nice to have. But our experience with that is a great CEO, a great management team. They can pick that up reasonably quickly. So it's not having you don't necessarily need that experience as a public company CEO or CFO to achieve that, to be successful in the public setting. And I think baby bunting is a great example. Matt is awesome. Darina is awesome. And neither of those had public company experience as CEO and CFO, so they picked it up and ran with it. I've done an amazing job as a public company. [00:10:06][96.1]

Alec Renehan: [00:10:06] One other element that TDM puts a lot of emphasis on, and I would be remiss if I didn't give Ed Cowan a shout out who we had on the podcast earlier and spoke a lot about people and culture and the importance of that and the importance of that for today when they invest in a company. How do you think about people and culture when it comes to transitioning and going through an IPO? Is that I mean, it's a tough, tough thing to define at the best of times. How does TDM, as an outside investor, sort of assess where that's at and then decide if that needs to be a focus of change? [00:10:38][31.4]

Tom Cowan: [00:10:39] I would say once again, you know, we think this is a good process for any company of that size and scope, whether private or public. But in order to be successful in the public setting, you want to make sure that you're humming. And the business is humming, and for the business to be humming, you need the right people in cold for that particular point in time. So there are a number of ways to measure that. You know, we're obviously big fans of engagement surveys and using tools like Coltrane to ensure that, you know, from that you're getting you have very high engagement. You know, you've got the right people. You know that the business from a people perspective and a people and culture perspective is humming. And obviously, that's something that we think is very important to ensure that as you go into that public setting, you've got that right because you don't want to be doing mass overhauls or management teams, for example, or even a significant portion of your team in the public. And you want to do that behind closed doors. You want to make sure you've got those people. As we say, we like to say 90 percent of the people on the bus to the right people. And you want to do that going into that process. I mean, another important part of that which we haven't touched on is you want to make sure you've got the right incentives. So we're big fans of having the right long term incentive programs for your people. And so we spent a lot of time on that, making sure you got the right structures around long term incentives, aligning both management team and the rest of the team with the shareholders leading into an IPO process. [00:12:10][91.5]

Bryce Leske: [00:12:11] Tom, one of the other aspects that you often hear about private companies not wanting to go public is all of the governance and financial reporting that comes with an over who are talking to shareholders and what not. How do you help prepare companies for that part of the process, particularly that sort of financial reporting lends? [00:12:30][19.0]

Tom Cowan: [00:12:31] Yeah, we hear that quite a bit. And I suppose we run a private company boards and one our private company boards operate exactly the way they do in the in the public setting. So we actually say for all our private companies, we want a public company quality board behaving like a public company in the private setting for those two years prior so that they're practicing becoming a public company. We actually say it's the right thing for the business to get the best possible outcome. So we struggle with that concept. We actually think it's important to have governance around successful businesses and, you know, something that we're actually quite passionate about. We also think that having five, six, seven, eight great non-executive directors is highly additive to the business. You actually get better outcomes by having that quality board in place. And so we don't see it as a negative, you know, process driven issue. We actually it we've got five, six, seven highly intelligent commercial people adding value that are passionate about the business, are aligned ideally with equity as well, and just trying to help that business grow the fastest it can. In terms of the financial reporting, once again, you know, we actually want our private companies to behave in a very similar fashion as they would in public. And so that's just good rigor that we like to bring to our companies. And we don't see that as a negative at all, in fact. So very simple things. We want our companies audited and completing their annual accounts six weeks post, year end. We think it's the right thing to do to to get that, you know, then you're humming the systems and processes. A-Rod, you've got the right ERP system, you've got the right people in finance when you can deliver on that. And yes, you've also do that in the public setting as well. But we want that regardless. And we just see it as as we want all our businesses behaving that way. [00:14:29][117.9]

Bryce Leske: [00:14:29] So if you take a sort of step back and look at investing sort of thesis of TDM and you spoke about that long term approach, is that why it is important for you to make sure this process is sort of a 24 month and not just let's get this done in three months and rock and roll in the markets? [00:14:47][18.1]

Tom Cowan: [00:14:48] I think that is a very critical point. So we're not looking for an IPO to exit, maximize price and sail off into the sunset. We just see it as the next stage in the evolution of the business. And in fact, one of the main reasons we look to an IPO is that so all the employees in the executive team actually get value for their equity and can be partners in the business. That's really a key driver of a business going and going to IPO for us. And so we still want to remain a long term shareholder in that business. And in fact, if you look at specific smiles and TIRO, we own more businesses. We own a higher percentage of that business today than we did prior to appear. So it's not about us selling and moving on. It's about the next stage in evolution of the business for us. And ideally, we remain a shareholder for a very long time into the future. It's not an exit event for us. [00:15:44][56.1]

Bryce Leske: [00:15:45] So you're not private equity? [00:15:45][0.6]

Tom Cowan: [00:15:50] I think, look, everyone has their own way. They of and own constraints, obviously, private equity, have a constraint around fan life, we actually wanted to make sure when we set up our business we didn't have that constraint. And that's really the key driver of private equity, is that they have a fun life where they have to return money to their shareholders and that drives a certain behavior. We actually when we first set up 15 years ago, I went out of our way to ensure that we didn't have that. So we didn't have that constraint and that that allows us to own businesses for the long term. And so, in fact, one of our businesses we've owned 15 years and I think at last count, 40 per cent of our portfolio we've owned for between seven and 15 years. So we're and I think it's a key foundation in terms of what we when we set up today and what we wanted to do. We want to be a business owner and we want to be a business owner and back those teams for a very long period of time to compound our capital at high rates. And I think that's a very important differentiation to what we do and to ensure that the businesses get the best possible outcome. [00:16:57][67.0]

Alec Renehan: [00:16:58] I love that philosophy. We hear it so many times from so many different investors, you know, thinking like a business owner, thinking long term. And it feels like, you know, it's very easy to get caught up in the short term movements in the market and all of that. And I guess you're success of your fund is a testament to the logic and the reason why you stick to those philosophies. [00:17:16][18.2]

Tom Cowan: [00:17:17] I mean, it's common sense in our view. Sadly, I don't think that many people actually stick with that and that emotional stability. Is very important and that change of mindset, I'm a business owner. Business is actually going to change in value every day. Yeah, it's just that you happen to have a screen in front of you that, you know, flick red or green on a given day. But that's actually not is what is happening in reality. And I think that if you were to walk into the TDM office, no one has a screen open. It's a very different [00:17:52][34.8]

Bryce Leske: [00:17:52] a nice office. [00:17:53][0.4]

Tom Cowan: [00:17:54] And I said, great. So there are no flashing lights. In fact, you know, we will have a client ring up. And I might ask what's happening in the market that we've got absolutely no idea. It's just it's a very different mindset and very hard to do when you have monthly reporting requirements. Unfortunately, we don't have that issue. [00:18:16][21.3]

Alec Renehan: [00:18:17] So if we tie together a lot of the minus 24 or minus six month period, I guess you could sum it up by sort of getting your house in order, like getting the right team in place, getting the right culture in place, getting the financial reporting in place, getting the right systems in place, getting everything ready for the next stage of growth. We've mentioned some of the companies that you took through that period and onto a successful IPO, baby bunting, Pacific Smile's, Tyrer, you know, without giving away anything that's, you know, proprietary or anything that you can't talk about, were there any sort of big events or key learnings or anything that you thought was, you know, a big milestone for those companies in that period on their journey [00:18:56][39.5]

Tom Cowan: [00:18:57] where we talk about the 24 month period, sometimes it's longer and we've got to be a little bit careful. It's not it's not that cookie cutter. And maybe I'll pick on baby bunting. You're a big fan, so it's an easy one. That was a longer journey than two years. We became the largest shareholder going to forget the day somewhere. I think in 2011 12, the business did an IPO to 2015 and there was a lot of work that happened between, let's call it 2011 to 2015. We found Matt and found an awesome CEO that has done an amazing job that was very important. That business was a family business that didn't have that CEO to go to the next level. So Matt became very important in terms of recruiting him. We recruited the entire board. We recruited Darren, the CFO. So we made sure we had that right team. The business in 2009 10 didn't have an online presence at all. So we spent a lot of time helping the business refine its online strategy and really going deep there. We spent a lot of time with the team providing international insights around what's happening with Amazon around the world and some of the leaders that we look to like our baby in the US and what they were doing. And then, you know, we wanted to make sure, you know, if you talk about the how it works in practice, you know, we wanted to make sure Baby Bunny had real-time sales, real-time gross margin numbers, weekly wages so that the store managers and the people in of office were talking profitability on a weekly basis. They had that real-time information. And it's amazing what that does to performance. And so the business had all the ingredients for success. It had an awesome store format and was doing many things that that people weren't doing in terms of its competitors. But it needed to really go to that next stage. And it was at three or four year period where by the time it got to IPO, you know, as a high performing team delivering on its results and had all the right systems to take it to the next level. So it's not always a two-year process. There's but there's no big event either. It's not. You know, it's it's a daily grind. I'd like [00:21:12][135.0]

Bryce Leske: [00:21:12] to find that the founders are sort of itching to get going and you're having to hold back [00:21:17][4.7]

Tom Cowan: [00:21:17] a little. Not really. Look, founders understand or CEOs understand, but I understand what it takes to build a business. I understand business is a daily grind. And so I think, you know, every great CEO or founder understands and knows when they're ready. I think I would say where you see Rushdi IPOs, it's normally driven by the shareholders and that's where the problem arises. So you say there have been some more recent IPOs where maybe the CEO's only been in for a month or two. That's got nothing to do with what the CEO wants. That's got to do with the shareholders wanting an outcome. Yeah, and there there's some of the red flags that we look out for when we're a public, when we're looking to invest in the public, setting the. [00:22:03][45.6]

Alec Renehan: [00:22:04] So if we move to the next period in the IPO process and this, I imagine, is where things move a lot quicker and a lot more external forces coming, you know, and speaking to the company and really getting ready to go public, that minus six months to go-live process. There's a bunch of things, you know, roadshow's prospectus, all of that stuff. So I guess if we start general and get specific, can you tell us how you approach that period of pre-IPO with the company? [00:22:34][29.6]

Tom Cowan: [00:22:35] So it's sort of the investment bankers heaven that you're having and the lawyers and let's not forget them. So, I mean, it really becomes process driven at that point. So it's unfortunately for our management team, they're working. We always say you're working two jobs, you've got the IPO process by day and you're running the business by night. So there's a lot of work from a due diligence perspective that lawyers and, you know, friends and asset require that needs to get done. And that's it's really that process is driven by the investment banks and the lawyers. And it's really a process there. Obviously, various points of sensitivities that we have. We want to make sure our companies are presenting well. We want to make sure the management team, you know, answer the questions in the appropriate way. We're obviously very sensitive to pricing. We want our businesses priced for success because we're going to remain shareholders for a very long period of time. So we want to make sure that banks are aligned with that, that when we deliver an IPO, it's going to be successful [00:23:43][68.6]

Alec Renehan: [00:23:44] just on that. What is priced for success mean to you? [00:23:47][2.6]

Tom Cowan: [00:23:47] It means that we're not pricing for an exit. So if you're looking to sell a a significant portion of the majority of your shares, you're looking to maximize price. And so you'll push those incoming investors as far as possible to maximize your outcome. We're not trying to do that. You'll see most often or certainly so far, we will ideally sell no shares. Sometimes we'll sell a small amount of shares to facilitate liquidity. And the key for us is we want the institutions coming in to have a successful day, so to speak, in terms of that IPO day that they've bought shares and things have gone well and it's gone up and that that will pay off in the future. When you have happy shareholders, that ensures that it takes a lot of pressure off the company, a lot of pressure off management, because you don't want those shareholders. They want to be under water. No one likes losing money. And that creates a lot of pressure when people start losing money. [00:24:44][57.2]

Bryce Leske: [00:24:45] What about on the other side, though? If, you know, you see over in the US markets, particularly the big tech stocks that come on an IPO and they pop 40 percent and then they come down, is that to you a successful IPO if your stock pops 40 percent or is that a mispricing? [00:24:58][13.1]

Tom Cowan: [00:24:59] There's a fine line. I'd say it's a very hard thing to do. And I think there's been a lot made of that, obviously. But it's interesting, particularly if you look at the US technology stocks, they're often 100 million dollar rises, for example, in a two, three, four, five billion dollar business. It's a small proportion of free float that's actually trading. And so you get a lot of demand for these high quality businesses and there's a small available pot and that can drive some very significant different outcomes. We sort of think about it. If you're a painter, it's impossible to control. If you're to paint the perfect picture, we're looking for somewhere between 10, 15, 25 percent day one performance that makes everyone happy and quite excited by that. But unfortunately, you can't say that's exactly what's going to happen because it just doesn't play out that way. But, you know, I think if you're getting a 50 to 100 cent pop, you have mispriced it. But I would say if you're only selling a small portion at the end of the world, if that happens, I'd much prefer that than to be down 10 or 20 and have all the pressure that that that puts on the management team. So I would lean towards more positive than running the risk of having a negative experience. [00:26:17][77.5]

Bryce Leske: [00:26:18] Really a basic question for everyone out there who actually prices it. [00:26:22][4.1]

Tom Cowan: [00:26:22] Good question. Thank you, sir. I mean, it's a combination of the company and the investment banks. Right. And that's obviously the I mean, in terms of when I say the investment banks, that's obviously driven by the demand coming in from institutions. And so it's a balancing act. Obviously, the companies taking advice from the investment banks, we typically have a very strong view about the price for many months leading in fact, I think for baby maintain for peak on that one. Again, we told the investment bank six months prior to IPO, this is where we think it would be a fair price. It ended up being. It was. And demand for the IPO was well-loved at the time IPO, there was massive demand and, you know, we made the decision whilst we could have potentially increased prices. That wasn't the right thing to do. And we went ahead and actually the price that we suggested many months prior because we thought that was the right thing to do. [00:27:21][59.1]

Bryce Leske: [00:27:22] So does that create tension somewhat between company and bank during that process? [00:27:28][5.6]

Tom Cowan: [00:27:28] It or can. So once again, depending on your shareholders to turn on your board. And depending on what you're trying to achieve, there can be tension there. I would say it's rare for us to have tension because we care about the next five to 10 years to the first day. So we're going to price it and go in on the basis we want it to be successful. So that takes the tension out. If you're pushing for a price maximization event, you'll have a lot of tension. [00:27:53][24.2]

Alec Renehan: [00:27:53] Is that because the investment banks want to lower so they can sell the [00:27:57][3.6]

Tom Cowan: [00:27:57] stock makes it easier. They also want their clients, which happens to be both the company and the incoming shareholders. I want them to have success as well. So there I mean, the investment banks are in a tricky situation from their perspective, and that's just a fine line. But once again, I would say with our IPOs has been close to no attention around price because we've wanted a successful IPO. So it tends to be a happy experience for everyone. [00:28:25][27.8]

Alec Renehan: [00:28:26] So there's a number of other events that happened in that six month period. The investor roadshow is obviously often spoken about, but for retail investors, unfortunately, at least to this point, we don't have access to see the companies present. That's mainly an institutional focus thing. The prospectus is something that anyone can read. And, you know, for retail investors, often it's probably the best insight we get into how the company thinks about itself and its future plans. I imagine there's a lot of work that goes into forecasting the future and agreeing on a forecast for the future that everyone can get on board with. What's the process like that? Trying to predict the future, put it on paper and then send it out to the world to [00:29:10][44.0]

Bryce Leske: [00:29:10] make it look as rosy as possible? [00:29:11][0.9]

Tom Cowan: [00:29:12] Well, every word is verified, so that's just as painful as the actual process is. Very, very painful. And literally, every word is underlined and verified as that's a sort of something that is not that enjoyable. But in terms of I mean, you're right. It's very unfortunate in Australia, it's very hard for retail investors to see them present. I would, however, recommend in the US Retail Roadshow, awesome. You can actually there are half an hour presentations of management teams on Retail Roadshow for us, IPO. [00:29:45][32.8]

Alec Renehan: [00:29:46] Is that is that a website? [00:29:46][0.8]

Tom Cowan: [00:29:47] That is a website free of charge. So there's a for those that are willing to invest internationally, I highly recommend love to bring that to Australia because where I mean, we're a big fan of equality and transparency and I think it's actually the right thing to do. So not here yet, but hopefully one day. [00:30:05][17.8]

Bryce Leske: [00:30:05] Yeah, I would love to be part [00:30:06][1.3]

Alec Renehan: [00:30:07] of the process Equity Mates our on. We can explore the way [00:30:10][3.8]

Tom Cowan: [00:30:16] And in terms of the prospectus, I mean is it's actually important. It's not just rosy. You really want a prospectus to give a very clear understanding to everyone. What is that capital advantage of the business and what are their future prospects? And ideally what we actually do is a little test. We actually give someone in the team the prospectus this is prior to lodgment and say go build a model. And based on that, how does your model that you build just on the prospectus, you know, nothing but that information in the prospectus. How does that compare to our internal five year forecast? And ideally, they're roughly the same if we have that we've achieved that. We've we've now the prospectus. [00:31:02][46.1]

Alec Renehan: [00:31:03] Okay. So is the approach very much to try and replicate what your internal forecast rather than going for like an under promise and over deliver sort of model? [00:31:12][8.5]

Tom Cowan: [00:31:12] Well, look, I think everyone wants to beat their prospectus. I'm talking in a range, but you want it to be broadly in a range and you wouldn't want it to be over. Yeah. So you don't want to be over. But, you know, if it's directionally in line with your five year model, that's a great outcome and means a retail investor that does a work or an institution that does the work gets roughly to the same answer. [00:31:37][25.4]

Bryce Leske: [00:31:38] So, Tom, before we move to some actionable insights to close out this episode, once you've taken the company through this journey, they've hit the markets. They're a public company. Where does your involvement then go from there? [00:31:52][13.4]

Tom Cowan: [00:31:52] So it does depend on the company. So we're still on the board of Tower was still on the board of Pacific. Small Pacific smiles actually. Listen, 2014. So there are. For example, baby bunting, we decided to exit our position a couple of years after IPO. It was obviously super successful investment for us. We love the business. We love the management team. But we felt the time was right at that particular point in time. So at the moment, we have no involvement with baby one thing. So it really does depend on the situation, for those are where we remain an investor and a board member and we remain active trying to help that business achieve the best it can achieve, as we did in the private setting. So really, there's no difference where we remain involved. There can be a situation where we, for example, don't have one at the moment, where we're not on the board. We remain an investor, even though we were on the board prior to the IPO and we remain a long term supportive shareholder. That is an important role for us to play. [00:32:54][61.5]

Alec Renehan: [00:32:54] Tom, as Bryce alluded to, we want to get to some actionable insights are some things that our listeners and Bryce and I can take away and really apply to how we think about IPOs. And I guess you step through a perfect IPO process, the textbook process that TDM thinks companies should go through to be ready for an IPO. How can someone like Bryce Auri who can't, you know, see what you're doing at Tadmor? We can't speak to company founders and company executives themselves. How can we from the outside looking in, look at a company and assess whether they've taken the steps and they are ready or they're rushing the process? [00:33:33][38.4]

Tom Cowan: [00:33:34] It's a great question. It's a little bit tricky because we obviously have some experience and in terms of we are happy to invest in businesses, an IPO or soon after IPO. And so we're looking for the same things that you would be looking for as you read a prospectus. So what are the red flags, so to speak, that we would be looking for if we were coming into an IPO? That may not necessarily be an issue, but it's just something to watch out for. So if you think about the people, let's think about that. When did the board if you go down through the board, when did they join the board? Did they join one, two or three months ago or did they join two, five or 10 years ago? And so they've been part of that process. What equity do they own of the business? So are they there because they passionately believe in the business? If they passionately believe often they will have significant equity in the business so that from a board perspective, that that tells you wasn't run as a proper functioning board. For many years prior to up here, same with management team, when did they join and how much equity to they owned and they join one or two. Did the CEO join one or two months ago? Red flag doesn't mean it will be a bad business, but it is obviously. Well, that seems a little bit strange if you then go through the solar systems to make, you know, is the business got humming back office or do they talk about the systems in the prospectus? And when you look at those systems, are they best of breed systems that they using best of breed technology? Do they talk about their people and culture in the prospectus? Some will give engagement scores for, you know, for the for their people. So how developed are they? And are they willing to talk about it if they're willing to talk about that? I would say that's a good sign. If they're not, it doesn't once again, doesn't mean it's a bad company, but it's just something to watch out for in the future. I would say something else just from a people and culture perspective. Always have a look at Glassdoor. Not so big here in Australia, but if you're investing overseas, Glassdoor will give you a great run-Through of where they are from people, because you've got to be a little bit careful and believe everything you read. But that is a way, the way or tool we use as an external investor to assess where people are from a people and culture perspective. So there are some tips and hints, so to speak. [00:35:54][140.6]

Bryce Leske: [00:35:55] Are there any other sort of major red flags outside of your sort of your process that a retail investor could identify and sort of, you know, maybe think twice about participating in an IPO? [00:36:06][10.7]

Tom Cowan: [00:36:07] Well, I'd say I mean, we typically don't invest in these businesses, businesses that are coming together for an IPO. So where you've got one, two, three businesses merging at an IPO to then become a public company, the alarm bells ring pretty hard at that point for us. But that's certainly something that I think people should be looking at for. I mean, we're big fans of organic growth rather than acquisition growth. So something how acquisitive has that business been? Obviously, in a prospectus, say pro forma, all that outside what? You know, you can sort of get the pretty shiny picture. You got to be a little bit careful. And so we would be very wary of that and certainly something I'll be recommending any retail investor to to look out for as part of their process. But, you know, just because you might miss out on day one and, you know, we still think it's a great opportunity to find great businesses, just make sure you do the work prior to investing. [00:37:04][57.3]

Bryce Leske: [00:37:05] What about the who is actually selling the IPO side? Is that something that needs to be considered? [00:37:09][4.3]

Tom Cowan: [00:37:10] You know, it is. Or miss the ones that are probably put that at number one, asset price maximization. So, you know, it comes to how big a proportion. I can't believe I missed that one. How big a proportion, you know, are those major shareholders selling if they're trading as a profit maximization event? You know, back in the day many years ago, there were people that would sell a hundred percent of their shares would appear 100, and they'd get away with it. That's a rare occurrence. So you won't see that very often. Institutions won't put up with that anymore. But certainly, you know, significant portions. Barwari doesn't mean it's going to be a bad IPO. They may have other reasons to be doing that, other pressures, but just something to be to be careful of. Obviously, ideally, you have people either not selling or buying even be better. [00:38:04][54.3]

Alec Renehan: [00:38:05] Do you think about the founder in the same way, like is there a sort of minimum amount of equity you would want the founder to hold, or is it mainly the big shareholders that you're looking at? [00:38:14][8.5]

Tom Cowan: [00:38:14] It's an interesting one. We are actually happy for founders to sell some shares. Most people will actually screw up their face and think that's a bit strange. We think it's reasonable for founders that put five, 10, 15, 20 years of hard work. They've put their house on the line. They've got the personal guarantee. They've earned the right to sell some shares. Now, having said that, we want them to remain substantial shareholders and we want them to obviously have a substantial portion of their assets in the business to keep pushing that business to achieve everything it should be achieving. But we have no problem with founders selling some shares that they deserve it at the end of the day. And I would say that's Aviad. So that's actually not a widely held view. Most institutions hate when founders sell shares. We think that's wrong as long as they remain significant shareholders and a significant portion of wealth where we're very happy. [00:39:07][52.9]

Alec Renehan: [00:39:08] I've got one more question about IPOs before we wrap. And it's not really related to Australia, but a trend that you are seeing out of America is special purpose acquisition. [00:39:18][9.8]

Alec Renehan: [00:39:19] and I'm just interested to get your personal thoughts on it, because I don't really know how to think about it, but it feels like every man and his dog right now is setting up a spark and IPO ing it and then a. Hiring a company, how do you think about that trend, do you think it will come to Australia? [00:39:35][15.1]

Tom Cowan: [00:39:35] I don't know. Mean it's reasonably new. It's obviously been very popular in the last six months. It seems like it is back a day. Yeah, at the moment. And direct listing is another trend. And I slightly not what you asked, but I'd say direct listings is pretty interesting to us for those companies of size and scale that have significant number of shareholders already to actually a fair a very fair process to go through so we can definitely see the validity of a direct listing. The specs, I would say we're still working through exactly how that plays out. So I think I think you will see and we're seeing quite a few facts, but actually now you know, where companies are effectively vectoring through them now in the US, I think let's wait and see what that looks like. I think the jury's out for the moment. Let's let's [00:40:25][49.6]

Alec Renehan: [00:40:25] see. We'll have to go on and have a full conversation about how. [00:40:29][3.7]

Bryce Leske: [00:40:30] So, Tom, final question. How do retail investors actually get involved in IPOs? It's one of those things that we always, unfortunately, seem to be like third hand sort of information. It's not until it all happens. And maybe that's just how things are at the moment. But, yeah, what's your view on it? [00:40:45][15.7]

Tom Cowan: [00:40:46] Look, it's challenging. And at the moment, really the only way and we'd love this to change, but at the moment, the only ways to be a retail client of the broker that is doing the IPO. And so at that point in time, you can participate. But yes, is a five, ten, 15 percent, maybe 20 percent Taiwan performance. That isn't the game. So, yes, that's nice. That makes everyone feel great. The game is over the next five to ten years. And so are you picking the right management team with the right business, driving and getting the right outcomes on a five to 10 year view that day? One outcome is sort of irrelevant. So you can buy day one. And there are many examples. Back in the day, we bought shares in JB Hi-Fi, day one, super successful investment. Yes, it went up. I can't remember the exact number, 25, 30 per cent they won. But, you know, look at what it did in the ten years. So this time of won. And there are many, many, many examples I. I can see why people are disappointed with that. I would just say hopefully that changes one day. But don't not invest if you find the right business, the management team, because you've missed out on the first twenty percent. [00:41:59][73.7]

Bryce Leske: [00:42:00] Nice. Well, Tom, thank you so much for joining us. It's been an absolute pleasure walking through the IPO process to everyone in the Equity Mates community. Stay tuned, because we've got an exciting episode to follow this where we're going to be walking through a bit of a real life example with a CEO of one of Australia's most well known companies who is considering an IPO. So stay tuned for that and we'll be walking through that with Tom. Now, if you have really enjoyed listening to what Tom has had to say today as well, there is a whole bunch of further information available at the stadium website around the IPO process, as well as a bunch of other awesome resources, everything from case studies on a number of their investments, some blogs around, you know, people and culture and what they look for. And also the scaling up podcast, which is all lessons from the world's best CEO and founders. Head to tdmgrowthpartners.com to sign up to their quarterly email, perhaps the second best email in town via behind Equity Mates. [00:42:58][57.9]

Alec Renehan: [00:42:59] second best email and the second best podcast. [00:43:00][1.4]

Bryce Leske: [00:43:02] It's honestly a phenomenal resource for sort of every sort of investor head there and sign up and they'll send you a quarterly email as well as all those awesome resources. But Tom, thank you for your time. We're looking forward to the next episode. I appreciate it. Love to. [00:43:16][13.3]

Tom Cowan: [00:43:16] Thanks for having me. [00:43:16][0.0]

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