Preparing Division President to Lead a Spin-Off IPO

Situation Overview

A $15 billion mining company, the business unit of a $34 billion parent organization, appointed a new President in 2016. The parent company’s strategic intent was to spin out and IPO the business unit, setting it up as a public company. The board and senior management believed that preparing the Division President for public-company CEO leadership, as well as giving him guidance for navigating the nuances of IPO preparations, would be keys to the success of the venture. As an engineer by background, the newly appointed President himself sought a sounding board on how best to lead the company through this transition. He wanted a true thought partner with whom he could exchange ideas, and who could provide an objective voice of reasoning.

Merryck Support

Merryck paired the President with a mentor who had led through an IPO process as a CEO himself, and who had helped multiple first-time CEOs successfully prepare for and navigate IPOs – including a spin-off from a parent company. The mentor gave him guidance on how to effectively lead through the process and helped the President clarify his direction and changing role as head of the company. Together, they thought through the salient opportunities, risks, and financial considerations most crucial to the IPO. They prepared for and debriefed after investor and analyst road shows, and the President learned how to best question and optimize conversations with different banks. They were rapidly laying the IPO groundwork.

Midway through the process, however, the parent company transitioned-in both a new CFO and a new Chairman. At the time, the President was in the formative stages of standing up his own legal, finance, and HR infrastructure, but the shift in leadership suddenly prohibited him from hiring additional roles, greatly limiting his resources. The hiring freeze, in concert with the need to reconfirm the strategic concept of the IPO with the new CFO and Chairman, took the business unit back to square one, as the board and CFO began to rethink the spin out and consider a return to business as usual.

Rather than simply giving up on the idea of an IPO, the President and his mentor together worked to adapt the President’s leadership to the new contextual realities. The President rebalanced his role between internal and external management, moving from a do-it-all management approach to a much more delegating style. In doing so, he empowered his team to make critical decisions and execute rapidly, allowing him to focus more on strategy and the pros and cons of an IPO process.

Outcome

The President and his mentor worked through a new IPO prospectus that they completed in under four months, and which received only 12 clarifying questions from the SEC. The regulatory advisors that the President had engaged informed him and the parent company that this was the fewest number of questions they had ever seen from the SEC in response to a prospectus. Despite all of the chaos, the President reported that he felt as prepared for an IPO as he could have been.

At the same time, the compelling business case the President created motivated the board to reconsider the true potential of their subsidiary, which had been regarded as a non-core asset for years. The business plan assembled by the President and his mentor was so compelling that the parent company decided to neither IPO the business, nor to return it to the prior old status quo, but to instead implement the plan internally and with much greater autonomy, operating as a stand-alone business. While in the end they did not IPO, the process of preparing for a spin-out not only helped the President demonstrate the true value of his business, but it also made him a more adaptable and marketable leader and raised his visibility with the parent company board and management as an important succession candidate.

“The last two years opened my eyes to a whole new world,” the President said, reflecting on his time with his mentor. “He helped push me through the whole process and manage the highs and lows. I told my boss that I just went to school for the last two years with my mentor, and that I learned more than I possibly could have learned otherwise.”