What are the benefits of floating my company?
Flotation or IPO (Initial Public Offering) happens when a company lists its shares on the Stock Market. For a forward-thinking company with a realistic approach to share pricing and with good prospects, this can be an excellent move.
Firstly, you can get access to capital. Raising cash is a compelling reason to float, either to finance growth or provide an exit to existing shareholders, or both. There are other benefits: a listed company has a certain stamp of approval, and it can be great PR. If you want to be a competitive employer, shares or a share option incentive scheme can be a great employee benefit.
However, don’t forget... It does take your business beyond your control to some extent. As well as market fluctuations, you will be answerable to your shareholders. You’ll be complying with additional regulations. Plus, as it’s such an involved process, you will be taken away from your usual business. We don’t want to sound like the voice of doom; however you need to consider all this before diving in and yelling “Look at me! I’m floating!”
Can I afford to float my company?
As the old business adage goes, you have to spend money to make money; and floating can cost a substantial amount.
As well as increased professional costs (more about these later) you will have to account for the cost of your own time. You’ll need to pay an admission fee, an annual fee, and commission on any new money raised as well as a beefed up board and professional advisers.
Again, if you give this consideration and are confident that your business can afford this, it can be a great way to raise capital for your company.
What market do I use for flotation?
For smaller and younger companies, AIM is a good choice – it’s got more flexible requirements than the Main Market, and it could work out more cost-effective. There’s always the option of moving up after a while.
The full Stock Exchange Main Market really is for larger companies. We’re talking about substantial capitalisation, and at least a three-year track record.
What people do I need on board prior to flotation?
Firstly, you need a corporate adviser. If you are going down the AIM route, your adviser will need to be a “NOMAD”, that is, someone on the approval register kept by the LSE. Likewise, if you’re looking to float on AIM, or raise money, you’ll need a stockbroker. You will also need a lawyer and an auditor.
Do you need a PR campaign? If you do, it may be worth outsourcing this too. Further down the line, you’ll also need to appoint a registrar to register your new shares.
What flotation documentation do I need?
The main document is the prospectus or Admission Document. This will provide information about your company: its products/services, its finances, its directors – an essential piece of information for potential investors. It also sets an offer price for the new shares (discuss this with your adviser!), and invites subscriptions. Together with your advisors you will end up triple-checking this document, as it’s vital it’s not misleading.
I’m ready to float... What’s the flotation process?
You’ve thought all this through. You’ve thought through the essential questions, made sure your resources are in place, and you want to go ahead. In brief, here’s the process.
- Start off by getting the right people on board. Your adviser especially will be a crucial person.
- With their advice, choose the market you want to float on, and get develop a view on what the business is worth
- Prepare your prospectus or Admission Document
- Go float! You’ll initially issue shares in the “primary market”; and once your shares are listed, any further trading happens in the “secondary market”
It’s a major step, and we won’t pretend otherwise. However, it’s a well-trodden path, and if you are willing to spend the time really thinking about all the points we’ve highlighted, it’s a move worth making.
At Panmure our ethos is to always offer the right advice. We believe in meeting companies early and developing trusted advisory relationships for life. So even if floating your company is not the right option just now, or indeed you would like to explore other options, we are always keen to meet with new and exciting companies.
To find out more about taking your company to the next level, please contact Patric Johnson.