Becoming a public company is a phenomenal achievement. You are no longer a start-up or small venture and have grown to a sizable business that many other people want to get involved with and believe in – you have something special. You are now on your way to the next big step in your company’s life and this is truly an exciting moment that should be savoured. Who hasn’t imagined opening the market on their listing day and seeing their name on the ticker. Before you get to that day, you need to prepare and ensure going public is right for you and your company.
Benefits of Going Public:
There are many benefits of going public (along with certain draw-backs too):
- Providing liquidity or an exit event for current shareholders and employees;
- Allowing you to access the capital markets with greater ease and access to a broader group of investors;
- Utilize your securities as a means of growth (M&A by way of shares instead of cash);
- Establish a means of valuating for your company easily as it grows;
- Attract and keep quality employees;
- Reduce dilution on subsequent offerings than in the private market; and
- Increase awareness of your company and prestige.
Should You Go Public:
Many companies (also called issuers) start to investigate whether to go public years in advance of doing so. The first decision any issuer should make is why it wants to go public and does it make sense. Think about your goals and what you are achieving from going public; ask yourself some of these questions:
- What is the main reason for going public;
- Is it the right time economically to go public (have your peers done it recently; how is the economy);
- Do you have a great story that investors want to be part of;
- Are you a high-growth or hot-sector, is your product cutting edge or disruptive;
- Do you have an asset that is very valuable (IP, resource claims, etc.);
- Do you have the metrics to show that you are a player in your industry;
- Are VCs or other investors driving the push to go public;
- Do you need to raise money often;
- Do you need to raise a substantial amount to achieve your business plan;
- Are you looking for an exit strategy that you haven’t found otherwise;
- Are you looking to acquire other players in your market;
- Are you competitors public companies;
- Are you ready to share information with the world.
You don’t need to have a check box beside all of above but they are some key questions in helping you solidify a decision. If you are just looking to “use shares as currency” or just want to say you are a public company then you need to consider more criteria to ensure this move is right for you.
Preparing in Advance:
Once you have made the definitive decision to go public you have to start to prepare to go public. The step from a private company to a public company is a big one and won’t happen over night. Some issuer start to act like a public company 12-24 months in advance of going public as a dry-run. This means to start to engage professionals and set-up your company right. Start to think about the following:
- Prepare a very good business plan (show your strategy, track record, growth prospects, competitive strengths and weaknesses, projections);
- Engage your securities lawyer to help guide you through the process and prepare the company for the next big step;
- Engage an accounting firm to start to review your books and conduct audits (you will need two years of audited financial statements anyways so might as well start);
- Find a great investor relations firm to work on your public image;
- Start meeting with underwritings and finding the right one;
- Create internal controls (such as insider trading policies, accounting policies, insider reporting preparation);
- Follow the timelines that are required by public companies – for example:
- annual audited financial statements done within 120 days;
- interim financial statements done within 90 days of the quarter;
- press release sent out when big things happen;
- getting ready for annual meetings;
- Establish a board that is suitable for a public company (do you have the right directors to guide you and who have experience);
- Establish an audit committee and compensation committee (comprised of a majority of independent directors);
- Prepare your material internal documents and agreements so that the due diligence process will go smoothly; and
- Clean out any problematic shareholder issues or litigation.
There is also the mental preparation of going public; as a business owner you have to be cognizant that some control will be lost:
- You will have to share material information with the world that you closely guarded before;
- You will hear a lot of people talking about your company (both good and bad) and how they would do things or how they think you should do things;
- Big decisions will need to be made by the board or the shareholders and it isn’t just up to you anymore;
- Watching your share price will add pressure to your daily routine;
- Your company may not be as agile as it once was nor can you pivot independently;
However, these new constraints will likely be balanced by the new found abilities you have to raise capital, acquire target and grow your business as you have always envisioned.
Now that you have prepared yourself and your company the IPO process will flow much smoother.