No Match Found
Going public can bring numerous benefits to your company. However, before a company starts to prepare for an Initial Public Offering (“IPO”), it should consider the strategic objectives it wants to achieve upon choosing this route.
It is also necessary to determine to what extent your company is ready for an IPO and consider the steps that need to be taken in order for it to be perceived favourably by prospective investors and to be able to operate as a public company.
A clear picture of the objectives you want to achieve by going public is of particular importance in the process of preparing for an IPO. Hence, the key question any potential issuer should consider is: „Why do I want to go public?”
Below are some of the possible answers:
Selling equity represents a permanent forfeiture of a portion of the returns associated with corporate growth. Also, going public can entail substantial costs, such as underwriting and advisors’ fees. However, it should be emphasised that proper management of the IPO process and the subsequent presence of the company on the public market can substantially reduce those costs.
Generally, a company that outpaces the industry average in growth will have a better chance of attracting prospective investors than one with marginal or inconsistent growth. Highly valued are also companies perceived by consumers or prospective investors as having unique or interesting characteristics (e.g. their products or services) and having a significant growth potential, which can be fully realised through the opportunities offered by the public capital market.
Many companies that have successfully gone public have demonstrated market support for their product or service that would sustain an increasing annual growth rate for a number of years. This growth potential, minimising the risk inherent in the purchase of securities, should be even larger if institutional investors are expected to buy significant blocks of shares in the company. An exception might for example be an early-stage technology company that has developed to the point that the risks usually associated with a venture capital investment, such as product development, manufacturing capability, market acceptance, and market size, have been reduced.
An established company can answer this question with historical sales data, while an early-stage company may instead use market research projections and demonstrated product superiority. In practice, the early stage company usually qualifies as an IPO candidate because of the uniqueness of its product or service.
In any public offering, the quality of the management team is a key factor. To have credibility with the investing public, the organization must have experienced leadership that functions well as a team. In addition, ownership by management demonstrates to investors that they have a vested interest in the company’s future. In order to have a successful IPO, management must be committed to the time and effort involved in meeting the deadlines, conducting analysts’ meetings, and providing financial reports required by the regulations on a timely basis.
It must also be prepared to upgrade the company’s system of management controls and financial reporting to ensure compliance with full disclosure requirements and shorter reporting deadlines, both of which are necessary to maintain credibility and investor confidence after the IPO.
The demand for IPOs can vary dramatically, depending on overall market strength, the public perception of IPOs, industry economic conditions, market prospects, and many other factors. When a bull market is booming, the market window for new corporate offerings tends to open and these new offerings enjoy bursts of popularity. In a declining market, however, the market window tends to close and IPO activity slows down and may even come to a dead stop.
Although no one can accurately forecast market trends, you must consider the importance of timing and be prepared to alter your company’s timetable. The usual timetable, from the initial meeting of all of the team members through to completion of the offering, ranges from several months to over one year. Active markets accept many offerings, but you do not want to be the deal that is just one day too late.