Do I need an IPO? I want to grow, and I need access to new equity. Apart from the traditional routes, do I need to list my company on the stock exchange? Is that my only option?
We hear so many questions from businesses who are looking to grow. We’ve worked with them for over 30 years and we understand next stage growth and the desire to keep pressing forward.
But before you throw caution to the wind and pursue an avenue that may actually not be the right one for your business, we thought we’d bring you up to speed on what you should know before your business goes Public.
What is an IPO?
An IPO, or Initial Public Offering is the process which a Private Limited Company applies to be listed on the stock exchange. Your business becomes a publicly traded corporation, with an initial offer of shares to the public for the first time for a percentage of the company. IPOs are usually undertaken by SMEs to raise cash if they want to grow, repay debt, expand by offering a wider range of services, or to enable existing stockholders to sell their shares.
It takes time – often, longer than you think.
For many SMEs who are considering going down the IPO route, they neglect to realise the actual amount of time and money it takes to get an IPO. Many are crippled by regulatory hurdles long before they’ve even attended any kind of presentation or bell-ringing. A huge part of going public is opening up the company’s books for public scrutiny – and the thought of this usually sheds light on a number of operational practices and processes that need to be sorted out first. Working with an advisor to get you through this phase of the project means that although you may have someone who knows the ropes, leading you along – you will be expected to do a lot of back-office work to get yourself, and your company’s bottom line, in order. Typically, your pre-kickoff or planning session could take anywhere up to 18 months, with the actual IPO execution process taking up to 9 months in itself.
It takes money – often more than you think.
PwC published a great look at the costs you could incur while going through the IPO process. 83% of CFOs that had been surveyed after going through the IPO process estimated spending over $1million on one-time costs associated with the IPO process itself. In the same report, they found that underwriting (the part that makes up the largest component of IPO costs by far) incurred on average an underwriter fee equal to 4-7% of gross proceeds. That’s not including the legal and accounting fees and other one-time costs that are thrown into the mix. Naturally, the more complex your business, the longer it will need to figure out.
So, why go Public at all?
Although a private company has more options to raise capital like finding additional private investors, borrowing, acquisition etc, an IPO raises the largest sums of money for the company and its early investors.
Being publicly traded also opens many financial doors: Because of the increased scrutiny from analysts and investors, public companies can usually enjoy better (i.e. lower) interest rates when they issue debt. An IPO increases the company’s exposure, prestige and public image – which helps in the long run with sales and profits.
Very often, public companies appear more attractive to prospective employees through the appeal being able to offer share-based benefits as part of the package.
If you’re already considering an IPO, you would have no doubt already done your homework. You’re probably already up to speed on what is needed to prepare your business for the commitments that lie ahead. We’ve worked with a number of organisations to get them ready for IPO listing – whether we’ve led the initiative, or worked as part of a supporting team – we know what’s expected, which is why they choose us to be part of their strategy. For an honest, real conversation about the validity of pursuing an IPO, or to hear more about how we can help you get up to speed, give us a call today.