Interviewing with a large corporation ahead of possible IPO

Question

While preparing for an interview with a very large corporation, I found out that the company is considering going public within the next year. (I saw this in multiple public news forums, with reputable articles directly quoting the CEO about it).

This gets me nervous because I would think it's a bad idea to join a company so soon before an IPO. Is this a valid concern?

Do companies typically fire large numbers of employees when undergoing an IPO? (In other words, as a new employee, would I be more at risk of losing my job if they go public?)

I read this post which discusses the different options that might happen to current employees during an IPO. The common denominator, of course, is that the IPO provides the company with a nice cash infusion. Does a potential IPO indicate that the corporation's financials need some help?

Lastly, a question specific to the job type that I'm applying for: This would be an management position heavily focused on the data across departments. Probably a dumb question, but would the company's software, assets, & data change a lot after an IPO? For example, I know that company acquisitions often result in lots of data merging and changing, but IPOs are obviously quite different than acquisitions...

My post is different from the link I referenced because my focus here is about how this would affect an new employee (rather than an existing employee), and especially what considerations would be relevant to a decision to join a company that's clearly considering going public.

Answer 1

Does a potential IPO indicate that the corporation's financials need some help?

Not really. An IPO would be regulated by the market regulator's stringent condition. If anything, it is a sign that the company is in good financial health at the moment, as otherwise, why would a public investor invest money in it.

Do companies typically fire large numbers of employees when undergoing an IPO?

Usually no, because fixed cost optimization by rationalizing the workforce is a negative signal to the market. Basically, if a business needs eliminating positions for getting healthy in the 1 year run up to the IPO, it would signal something is not right with the fundamental business model.

would the company's software, assets, & data change a lot after an IPO?

You can expect the company to have more regulatory compliances to follow once it goes public, because now it is under public scrutiny, and any avoidable negative news is bad for the stock price. But other than that, changes will always be there, however, they are hard to quantify.

This gets me nervous because I would think it's a bad idea to join a company so soon before an IPO. Is this a valid concern?

It isn't really a bad idea for the reasons you've mentioned.

However, know that some employees who have worked (hard) for years there might be holding more stock options, which would have appreciated significantly by the time of IPO. Them earning (deservedly) more money can be unsettling for some people.

Answer 2

First off, no, a company going public is not a sign of bad financials. Quite the opposite, a company typically only goes public when things are going really well and they think they have good prospects for growing even further. No one in the public is going to buy their stock if the outlook for the company isn't good. If they are serious about going IPO, it means things are looking good for the company.

Let's talk about what an IPO is. An "initial public offering" means the company is going from being a privately-held corporation, where only a select few people own its stock, to one whose stock can be traded on a public exchange, where anyone can buy in. There are a couple reasons to do this:

1. It gives the current stock holders an easy way to sell their stock and make money from it. They might be the original founders, early investors, or venture capitalists, but whatever they are, they put money into the company early on in hopes of making a profit someday. Selling their stock on the open exchange is an effective way to do this.
2. It raises money for the company they can use in a number of ways. They may use it it to pay off debt, they may hang on to it to just build a cash reserve, they may use it to get more staff/facilities/equipment to grow the business further.

The important thing to remember is that a company goes IPO because they have reason to believe people will want to buy their stock. People will only want to buy their stock if the outlook for the company is good and it is projected to grow. A growing business needs people to make it work. So I wouldn't worry about being laid off just because of the IPO. It could still happen, of course, but that's a risk you take with any company. The IPO is a good sign.

As for, will things change after the IPO? Maybe. If they are going IPO, it means they are already doing something right, so I would be doubtful they would want to mess with their formula too much. On the other hand, maybe they are planning to use the IPO cash infusion to completely revamp their technology stack and/or reorganize the business to drive further growth. This would be a legitimate question to ask in an interview, but not something we can answer here. Every company is different.

That all being said, I would take any promise of the company going public with a grain of salt. There are companies all over that think they are almost ready to go public, and then end up taking a long time. The company I work at now is "two years from going IPO," which is exactly what we've been saying for the past 7 years. So the considerations for taking this job or not are the same as they are for any job. If it looks like a good position you want to do and they are paying you what you want, go for it.