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executive leadership

Managing three acquisitions and an IPO in less than a year

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When Solo Stove contracted with a consulting firm earlier in the year, it needed help getting its financial reporting in order for a possible IPO. The Texas-based company launched in 2011 as a direct-to-consumer retailer of portable outdoor stoves and fire pits and, with its private-equity backer Summit Partners, was exploring going public.  

But the job originally planned for the consulting firm, Embark, quickly expanded; Solo decided to go on a spree to acquire three companies to round out its product offerings and it looked to the consultants to help it with acquisition valuations and purchase price accounting  all while keeping its possible IPO on track.

“For a lot of companies, just going through the pre-IPO process is incredibly burdensome,” Jason Larkin, Embark’s Dallas market president, told CFO Dive. “It requires a lot of flexibility and planning even for CFOs who’ve been through the process. When you add three acquisitions on top of that, you get additional complexity.”

Over the course of the year, Embark had between eight and 10 specialists assigned to the company.

“We would bring in incremental resources that had valuation or purchase price accounting expertise, along with core SEC reporting support,” he said. 

The company bought Oru Kayak in May for $25.4 million, Chubbies outdoor clothes in September for $129.5 million and paddleboard company ISLE in August for $24.8 million. Then, just a month later, it went public as Solo Brands, raising $219 million on a $2.1 billion valuation. 

Multiple tracks

For the company, the key challenge was keeping the potential IPO on track by integrating the accounting systems, close calendars and other components of each acquisition without introducing variables that didn’t link up with what the reporting team was saying in the S-1 that would be submitted to the Securities and Exchange Commission. 

“You’re going through the valuation and preparing the purchase price accounting for the acquisitions in a condensed period of time,” said Larkin. “And then you’re thinking about SEC reporting requirements, where you have to have the historical financial statements included for the acquired entities and you want to ensure there’s no broader impact so you can maintain the S-1 timeline the company was targeting.”

Any finance and accounting team would be taxed trying to integrate three acquisitions while preparing for an IPO, said Larkin, so for Solo it really came down to a simple bandwidth problem.  

“They’re still running a business day-to-day,” he said, “closing the books, making business decisions. On top of that, you have these additional financial reporting requirements that come along with the IPO process, so a lot of companies from a bandwidth perspective need support.”

Emerging growth company

Like the majority of companies going public today, Solo qualified to submit its S-1 to the SEC as an emerging growth company, a designation that gave it some reporting and disclosure flexibility. 

Among other things, it could submit early versions of the S-1 to the SEC for comment without making the document public and it gets more time, post IPO, to submit disclosures on the controls it’s put in place to ensure its system and processes meet Sarbanes-Oxley accounting-fraud prevention requirements. 

“The benefit is in the back and forth with the SEC on your S-1,” said Larkin. “You can receive the comment letters and provide a revised S-1 along with your responses confidentially and ultimately get the SEC sign-off.” 

With the acquisitions and IPO behind it, the consulting team is helping Solo’s accounting staff put in place, and get trained on, higher-level processes and systems, including close management and consolidation tools, and determine staffing gaps to fill.

“It helps to bring in people who’ve been through the process before, not just to supplement staff in preparing the S-1 but to train them on the systems and processes they’ll need to follow after the IPO closes,” he said.  

That includes helping staff who will be drafting pro formas and the management discussion and analysis (MD&A) section of financial reports, among other things, for the first time.  

“We’re trying to think proactively about the information they’re going to need to prepare these sets of financial information,” he said. “We train them to make sure they have the knowledge that we’ve gained helping companies through this process.”

Larkin credited Solo’s CFO, Sam Simmons, for creating conditions in which the company’s finance and accounting staff and the consulting team could work together as seamlessly as possible.  

“One of the things our firm focuses on is a hospitality approach,” he said. “What that means is, we try to think proactively about the next problem or the next potential solution. That’s an area [that was successful] in the partnership.”

To read the original article by CFO Dive, click here.
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