Overview

For fast-growing companies with solid portfolios, going public often becomes the next logical step to increasing value and brand equity. Executing a successful initial public offering (IPO), however, is a complex and complicated process made more so by the need to be ready to pounce when market conditions optimize. Assuming the company has been making wise infrastructure investments all along, the IPO process will still consume large segments of the business for at least a year. Even companies that have been operating to public standards will find themselves strapped for the kinds of skilled resources necessary to complete the extensive documentation required by investment bankers, auditors and regulators.

Is IPO for your company?

The decision to list the company’s shares on a stock exchange marks the turning point in a private company’s life. It is important to remember that the IPO process is very demanding, and obligations of a public company are different from those of a private business.

Firstly, the preparation for the Offering – specifically, evolving the company towards generally accepted standards of corporate management and governance; drafting the Prospectus (Admission Document); conducting financial due diligence and IAS/IFRS audit – is a challenging multi-faceted task.

Secondly, the management activities of a public company differ drastically from the management practices in a private business. Strategic decisions of a public company are not made single-handedly but are carried out according to the formal procedures established by the corporate rules and best market practice.

Finally, following the placement of an equity stake among public investors, the market is going to monitor the developments at the company. Any important decision made by the Board of Directors could impact the investor confidence and, by extension, the share price – either favorably or adversely.

There are a number of crucial questions the answers to which may determine whether your business is ready to become public.

If the company is:

●a leading player in the growing and profitable segments of the market

●led by an independent mindset of the current owners 

●driven by motivation of the personnel and commitment of the key managers to the success of the business 

●demonstrating sustainable growth rates and capability to win in a competitive environment

●experiencing shortage of equity capital and/or facing limits or unavailability of debt finance for the sustained development of the business…

and the owner of the business  is interested in:

●determining the real market value of the business and creating liquidity for  the shares of the company

●maintaining control over the business

●improving the terms of debt finance e.g. larger amounts at lower interest rates for longer maturities

●augmenting staff motivation and commitment to success

●increasing the efficiency of the business 

●boosting confidence and improving collaboration with partners, suppliers and customers

●exploring opportunities for creation of new business alliances (or sustaining the existing ones) on the most beneficial terms

●enhancing the reputation of  the company in the marketplace and receiving wider media coverage among the business community

 

IPO benefits

Main advantages of a public company are:

1. Access to capital to fund growth
2. Creation of liquidity and potential exit for the current owners
3. Maximum value of the company
4. Enhancement of the company’s public profile
5. Improvement in debt finance terms
6. Extra assurances for partners, suppliers and clients
7. Enhanced loyalty of key personnel
8. Superior efficiency of the business

 

See pros and cons of IPO on INVESTOPEDIA