The IPO Route
The transformation from a "Private Company" to a "Public Company" is commonly known as an IPO or DPO, allowing a newly formed company to list and ultimately trade its shares on a recognized Public Stock Exchange or US OTC Markets. The process to achieve public company status differs greatly from jurisdiction to jurisdiction, from stock exchange to stock exchange and from regulator to regulator. The common denominator in any public listing or offering is planning and preparation in line with local regulation. It takes many years to build a good business, the IPO process can be part of that building and is never a quick fix. We like to always keep in mind and have our clients understand that "Rome wasn't built in a day".
Argentum 47 Consulting work in many different markets, exchanges and jurisdictions to guide a client through the right channel within the right time frame, there are many factors to consider when seeking an IPO and the decision to become a public company does not come without its own idiosyncrasies; regular reporting, corporate governance and external shareholders are all realities that have to be factored into your thought process for the future.
Once the decision has been made to go down the IPO route we must analyse the best possible route for the company, a successful IPO or direct offering can very often be the spring board to rapid growth and expansion building true value within your company.
Advantages and disadvantages of a public company
- Broad exposure for the company and its products – Public companies become very visible.
- Ability to capital raise – Public markets with many investors. Capital raising at lower cost – higher valuation thus less dilution.
- Ability to exit in part – To sell shares in small amounts.
- Higher corporate profile – High visibility of corporation.
- Higher company valuation – Typically public companies have much higher valuation than a private company.
- Possibly subject to a predator – Maybe providing management exit.
- Mass market for potential investors – Open to retail and Institutional investors.
- Attract Institutional investors without losing management controls – Traditionally no board seat required by institutions.
- Acquisitions with paper – Stock for stock acquisitions allowing non organic growth.
- Staff retention and motivation with stock options – To retain valuable employees.
- Regular reporting – Regular Quarterly and Annual reporting mandatory.
- Disclosure of all material events – Any material corporate activity must be disclosed.
- Shareholders – External shareholders.
- Corporate governance responsibility.
- Greater time involvement – Management must devote additional time to public company operations.
- Ownership dilution – Owners give up some equity percentage.
- Increased expense – Higher costs of regulatory compliance for audit, legal and investor relations.
- Possibly subject to a predator – Company can be seen as vulnerable.