An IPO, or initial public offering, is the first sale of shares by a company to the public. Although in nearly all cases that initial stock will only be offered to professional investors, the shares will then be traded on public stock exchanges such as the London Stock Exchange. That’s why it’s often referred to as ‘going public’.
What’s in it for you?
There are many benefits of going public. An IPO can not only provide your business with the funds it needs to grow, it can also boost your personal wealth. You can sell some of your shares to new investors on IPO in addition to raising the capital your company needs to drive its next phase of expansion. The shares you retained are likely to be worth more and be far more liquid than they were before, so you can more easily realise the value you’ve built up in your business. The end result is that you will have released a significant amount of value in cash from your shareholding, your remaining shares are more liquid, the company will be fully funded for the future and it’s public profile will be hugely enhanced.
It’s easier than it used to be
In the past, only private companies with the strongest fundamentals and above a certain size could qualify for an IPO and it was harder to get listed. That has changed significantly. Now firms no longer need to have quite such a lengthy financial record to go public and there is significant appetite for smaller, high quality companies on the stock market. In fact, there are dozens of very successful funds investing only in smaller quoted companies. Yet being listed on a major stock exchange still carries a considerable amount of prestige and opens a lot of financial doors, such as the ability to issue debt or further stock to fund acquisitions and of course cash in some of your holding over time which is virtually impossible to do as a private company other than through a sale of the company.
What’s the catch?
There are several, but these are the main areas that you need to consider. Firstly, public companies are subject to much stricter rules and regulations than private companies. You will have to be prepared for a lot more scrutiny, disclosure and PR. Keeping those hundreds of new shareholders happy can be tough. Secondly, the route to an IPO is lengthy, can be expensive and along the way you must pass several regulatory hurdles. You will need to produce a whole host of documentation and undergo due diligence, then embark on a roadshow to woo potential investors. You will also need to consider the costs of going public, which can be significant, however, even with IPO costs included, equity capital can be a cost efficient source of funding.
Getting the right support
No one knows your company better than you do and ultimately it’s your knowhow and vision that will largely drive the success of an IPO. However, you’ll also be entering new territory and that’s where it’s vital to have the right support to hand. As a corporate and institutional stockbroker and investment bank with deep market knowledge, Panmure Gordon has helped many businesses like yours through every stage of the IPO process. Not only to overcome the many financial and regulatory hurdles you will encounter but to choose the right market, maximise the sale price, deal with market volatility and match you with the right long term investors.
We have been doing this since 1876 so have intimate knowledge of the challenges you will face and aim to be your trusted adviser throughout the journey – not just for the IPO but often for decades thereafter advising on your strategy, helping with acquisitions and always positioning your business correctly for the next chapter in your growth story. We have our brand, legacy and capital aligned with you so we want to make sure you succeed before, during and after your IPO.
To find out more about taking your business to the next level, please contact Patric Johnson.