Strategies for Going Public

Going public is a significant milestone for any company. The initial public offering (IPO) market has grown by significantly in recent years but, despite all of its rewards, an IPO is a complicated and time-consuming process that involves a high degree of risk and requires an extraordinary level of management commitment. 

Going public signifies, to both the company's executives and the outside world, that the company has achieved a special kind of success.  Overnight, the company will be transformed from a closely held entity with a handful of shareholders to a company with a large number of holders of stock that can be easily bought or sold.

On the surface, the transformation from private to public company appears fairly straightforward: a company “goes public” when it sells securities to the general public for the first time. In reality, the process involves must more than just a sale of securities, and the outcome of many of the other factors related to going public are not always easy to predict.

For example, what changes will occur in the company's corporate culture as a result of becoming a public entity? Opening the company to increased public scrutiny will change the way it does business, and the company will be under real and intense pressure to maintain growth and meet the expectations of the investment community.

The first step towards a successful IPO is to honestly assess the interest the company is likely to generate in the public market. While there is no universally accepted method for determining market interest, market appeal can often be predicted by certain guidelines that are indicative of the company's maturity and potential for future earnings. Companies that offer investors a high-risk/high-reward opportunity will be held to different standards than companies that are perceived to be long-term solid performers.

The time required for an IPO varies from one company to another, and may range from three months to two years.

There are also costs to going public, which should also be considered.

Professional fees will have to be paid to accountants, sponsors, lawyers and a public relations firm. The total fee will depend on the size of the new issue, and may range from 6% to 20% of the amount of capital raised.

Any company that offers securities must comply with the accounting principles and disclosure requirements applicable in its jurisdiction, as well as the rules and regulations of the regulatory authorities. Companies should be aware that these requirements are strictly interpretation and frequently change. Failing to comply with any of them may result, at a minimum, in significant time delays.

Before embarking on an IPO, it is important that the owners carefully weigh the advantages and disadvantages of going public in the light of the plans they have for the company. Although going public is a significant milestone for your company, a thorough discussion of the options with the company's accountants, lawyers and other professional advisors may identify alternatives that are better suited to the company's needs and situation.

Some of the advantages and disadvantages to consider in relation to going public are listed below, and should be assessed carefully with the assistance of the company's trusted advisors. Before proceeding with the IPO, it is important to plan for the organizational changes that will occur during and after the offering.