What Are The Pros And Cons Of A Company Going Public
Taking a company public is a significant step that can drastically alter the direction of a business. When a company goes public, its shares become available for sale to the general public, offering numerous benefits.
However, it is essential to consider that going public also comes with certain disadvantages. Let’s explore both the advantages and disadvantages of a company going public.
What does a company going public mean?
The exact meaning of a company going public may vary from country to country due to different regulations and authorities overseeing the process. In simple terms, a public company is one whose shares can be purchased by anyone through the stock market.
The process of going public can vary based on the company’s nature and the region in which it operates. Typically, it can be achieved through an initial public offering (IPO) or a special purpose acquisition company (SPAC).
Obligations associated with going public include selling privately held shares to the public through an IPO, meeting the SEC’s investor reporting requirements, or voluntarily registering with the SEC to disclose business and financial data to the public.
Advantages of Going Public
The following are the key benefits that a company can gain by going public:
Raise Capital
Going public offers numerous opportunities to raise capital through IPOs and future funding rounds. This enables the company to invest in business operations, research and development, and overall business growth.
Higher Valuation
A well-established public company listed on leading stock exchanges tends to have a significantly higher share price compared to privately held shares. Consequently, going public can lead to a higher valuation and stock price for the company.
Reduce Debt
Public companies can reduce their corporate debt through IPOs and funding. However, it is essential to seek professional pre-IPO advisory services to ensure the company is in the right position to manage its debt after going public.
Branding
Going public can help a company maintain its independence and name in the market, reducing the likelihood of being acquired by another corporation. Public companies often have higher chances of achieving name recognition.
Employee Retention
Public companies can retain existing employees by offering different stock grants and public stock options. Additionally, many new employees prefer working with large-scale public companies over startups.
These advantages make going public an attractive option for many companies looking to expand their operations, increase their visibility, and access capital from the public markets.
However, it’s crucial to also consider the disadvantages associated with going public before making this significant decision.
Disadvantages of Going Public
While going public can offer several benefits, there are also notable disadvantages that companies may face:
Time-Consuming Process
Going public involves a significant commitment of time, energy, and effort. The IPO process, in particular, can be very time-consuming.
Companies need to build a strong management team, handle various aspects like the board of directors, and prepare financial statements and legal agreements.
Engaging pre-IPO advisory services can help ensure the company is fully prepared for the process. However, using a special purpose acquisition company (SPAC) may offer a faster alternative.
Compromise on Business Operations
The focus on the IPO process and meeting regulatory requirements can sometimes lead to a compromise on the company’s day-to-day business operations and overall profitability. Striking a balance between the two can be challenging.
Cost
Going public comes with various costs, including underwriting and other fees. The extent of these costs depends on the size of the deal. Companies need to consider the financial resources required to complete the process. Seeking advice from professional pre-IPO advisory services can aid in making well-informed decisions.
Extreme Scrutiny
Public companies are subject to intense public scrutiny, and they must disclose a significant amount of information to the public through financial reports and disclosure documents.
This level of transparency may be a challenge for some businesses that were previously accustomed to keeping certain information confidential as private companies.
All in all
The decision to go public is highly dependent on a company’s specific circumstances and long-term goals.
It is essential for organizations to conduct thorough research and seek guidance from pre-IPO advisory services to assess whether going public via IPO or SPAC aligns with their objectives.
Proper preparation and consideration of the advantages and disadvantages will contribute to a successful transition to a public company and its continued success in the public market.
