Is your company ready to go public?

Going public can bring numerous benefits to your company. However, before you start to prepare for an initial public offering (IPO), you should consider your strategic objectives. You must also determine to what extent your company is ready for an IPO and what steps need to be taken in order to be perceived favourably by potential investors, increase the value of the business and be able to operate as a public company.

Why go public?

A clear picture of the objectives you want to achieve by going public is of particular importance in preparing for an IPO. The key question any potential issuer should consider is:

“In what ways will going public encourage business growth?”

Below are some possible answers:

• Raising funds to expand operations
• Securing easier access to capital on more favourable terms
• Providing liquidity and/or exit strategies for shareholders
• Enhancing the company’s reputation and credibility
• Increasing market awareness of the company and its products
• Providing financing to facilitate acquisitions of other businesses
• Attracting and retaining employees
• Obtaining a market valuation of the company

Selling equity represents a permanent forfeiture of a portion of the returns associated with business ownership and growth. Going public can also entail substantial costs, such as underwriting and advisor fees.

Nevertheless, proper management of both the IPO process and the company’s subsequent presence on the public market can substantially reduce those costs.

Does your company have an attractive track record?

Generally, a company whose growth outpaces the industry average will have a better chance of attracting potential investors than one with marginal or inconsistent growth. In addition, companies that are perceived as having unique or interesting characteristics (e.g., their products or services), and a significant growth potential generally valued higher.

Has your company reached the point where prospects for maintaining strong sales and earnings growth in the future are reasonably good?

Many companies that have successfully gone public had market a position for their products or services that have sustained high annual growth rates for a number of years. This growth potential, which minimises the risk inherent in purchasing securities, should be even higher if institutional investors are expected to buy a large stake in the company.

An exception to this could be, for example, an early-stage technology company that has developed to the point that the risks usually associated with venture capital investment – such as product development, manufacturing capability, market acceptance, and market size – have been reduced.

Are your company’s products or services visible and attractive to consumers and investors?

An established company can answer this question with historical sales data, while an early-stage company may instead use market research projections and emphasise the superiority of its products. In practice, early-stage companies usually qualify as IPO candidates because of the uniqueness of their products or services.

Is management capable and committed?

In any public offering, the quality of the management team is a key factor. To have credibility with investors, an organisation must have experienced leadership that functions well as a team. In addition, management’s level of involvement in the IPO process demonstrates to investors that they are committed to the company’s future. In order to have a successful IPO, management must be committed to the time and effort involved in meeting deadlines, conducting analyst meetings, and providing financial reports on a timely basis. It must also be prepared to enhance the company’s system of internal control and increase financial transparency to ensure compliance with disclosure requirements and shorter reporting deadlines. Quality and timeliness of financial reporting are necessary to maintain credibility and investor confidence after the listing.

Is the market advantageous?

The demand for public offerings can vary dramatically depending on overall market strength, public perception of IPOs, industry economic conditions, market prospects and many other factors. When a bull market is booming, the window for new corporate offerings tends to open, and these new offerings enjoy bursts of popularity. In a declining market, however, this window tends to close; IPO activity slows and may even come to a complete stop. Although no one can accurately forecast market trends, you must consider the importance of timing and be prepared to adjust your company’s timetable. The usual timetable, from the initial meeting of the team members to completion of the offering, ranges from several months to over a year. Active markets accept more offerings, and you want to avoid being the deal that is made one day too late.