Going public is a benchmarked level for any business company. An IPO, or initial
public offering, is what this is called. The procedure will allow the private company to
list on a stock exchange by allowing it to issue shares to the general public. Going public could be an important step toward giving companies more access to capital, visibility, and credibility; yet, it entailed a robust preparation, scrutiny under
regulations, and costs.
Here are the step-by-step considerations involved in taking a firm public:
Why Go Public?
First, let me state this: Companies go public for a variety of reasons, and
understanding why is of significance before entering the process, which includes:
Access to capital: including the ability to sell shares publicly where they can raise
huge amounts of money that can be used to boost operations, develop new products,
or clear debts.
Liquidity: Public listing allows founders of the company, early investors, and employees to sell off their equity.
Increased Credibility: Being listed at the stock exchange enhances the credibility of the company as well as gains new customers, partners, and talents.
Valuation and Perceived Value in the Market: Public companies are often valued more than private companies because they are transparent as well as reachable
within the market.
Steps towards Going Public
Preparation and Planning
Listing on the market requires much planning. An IPO normally takes at least 12 to 24 months to occur. Some of the activities associated with this period include the following:
Establish Good Track Record of Financial Performance: Investors are keen to make sure that the company has stable top-line revenue, growth, and profitability.
Seek out Advisor: Firms will have to determine which investment banks
(underwriters), lawyers, and auditors to hire in support of the process. Advisors can be a great help in structuring financials, ensuring regulatory compliance, and
bargaining with markets for the IPO.
Corporate Governance Development: The listed companies are supposed to have more stringent measures of governance. There are three key components, namely: board of directors, internal controls, and transparency of financial reporting.
Underwriters Selection
Underwriters, such as are frequently investment banks, play an extremely important role in taking the issuing company to the public markets. They may be able to help set the price for the shares and create interest while administering the sale. The
company will commit to these underwriters to manage varied aspects of the IPO process, including but not limited to
Value the IPO: They may even be assisting in valuing a share per price. They are working based on market demand, trends in an industry, and the economic outcome of the company.
Deals negotiation: Here, they will calculate the shares that will be given and how those shares need to be distributed.
Roadshow and Marketing the IPO
The company's management and underwriters go out on what is called a
"roadshow," marketing the IPO to institutional investors. A roadshow lasts for about
two to three weeks, with the most critical period at the time when interest in the IPO is initiated. Some of these steps are a few of the following:
Presentations: Company representatives speaking to investors concerning their prospects for growth as well as business models.
Creation of Demand: Underwriters receive investor feedback and, in response, revise the price range .
IPO Launch
After fixing the price, the company goes public to the stock market. The company starts its stock trading and issues shares to the general public for the first time. The stock might fluctuate on the IPO day depending on the demand and prevailing
conditions of the overall market.
Challenges of Going Public
Going public has advantages but poses its own set of problems, such as
Cost Fact: the process of going public is expensive at IPOs with legal, accounting, and underwriting services piling up fast.
Regulatory Scrutiny: There is more scrutiny by the regulatory bodies on the public companies. Naturally, this takes more time and is more expensive.
Pressure to Perform: Pressure also, from the public company side will be felt to perform, in terms of the reported earnings, like the quarter outlook, thus having a short-term focus.
Loss of Control: Going public dilutes ownership and gives shareholders a voice in the decisions of the firm, hence diminishing the control of the original founders and management.
Conclusion
Taking the company public is an advanced, multi-step procedure providing much
scope for expansion and growth. Accessing capital markets can accelerate a natural growth process of the company and make it a market leader in its industry. However, caution needs to be taken before such decisions are made since this entails benefits as well as disadvantages.
