Going Public
Going public is a significant milestone – one that would have taken months and years of preparation. The vital question for many companies is if an initial public offering (IPO) is suitable for them.
Preparing for an IPO starts with carefully evaluating its pros and cons and the potential use of proceeds. First and foremost, companies must be clear about its purpose for an IPO to ensure that their business strategy and brand story are aligned. A successful listing can help companies access financing from the public to complete a strategic acquisition, expand into new markets or provide an exit opportunity for private investors.
This access to permanent capital is available beyond the initial fundraising. Post-IPO, companies can continue to raise funds from the public such as through equity bond or public debt offerings as well. The company’s listed shares also serve as “currency” to finance future acquisitions.
Going public can also improve how customers, suppliers and employees perceive the brand and business. During the IPO process, companies communicate their brand and business strategies to investors and the broader business community, driving higher visibility and trust with consumers, suppliers and future partners. The potential for an employee stock options programme can also help to attract and retain talent.
Timing is a key determinant of the valuation and listing price of the company. However, it is challenging for companies to determine if the equity market conditions will be right to support fair valuation when the company is ready to list. IPO conditions can fluctuate. For example, following the record IPO activity seen in 2021, there was a global slowdown in listings in 2022 and 2023.
The Q3 2024 EY Global IPO Trend report finds signs of cautious optimism in global IPO markets. Indeed, with interest rates easing and companies gearing up for growth, IPO activities in the region are expected to pick up. While many elements such as macroeconomics are not within the control of companies, those that are prepared for the window of opportunity are better poised to reap the rewards nimbly.
Tapping Private Equity
Private equity (PE) firms, given their substantial financial resources, have emerged as a compelling option. Unlike traditional bank loans, PE investments do not require regular interest payments, easing the financial burden on the business.
PE firms have evolved over the years to accommodate the needs of various asset classes, be it early-stage ventures, growth businesses, infrastructure and asset-heavy businesses, or those focusing on impact. The tailored pools of capital in private equity enable a more customised solution that is better suited to the needs of the enterprise.
Over the years, PE firms have accumulated substantial dry powder that is ready for deployment, leading to an increase in PE-backed deal activity in 2024. In the third quarter of 2024, PE firms have announced 135 significant deals globally.
PE firms stand out for their ability to acquire and build great businesses even in challenging times. They are skilled at creating rapid value and adapting their plans as circumstances change. Their differentiated approach gives them an edge, and their focus on driving returns enables companies to thrive in a competitive market.
PE firms also have vast experience working with portfolio companies across sectors. This allows them to impart valuable expertise and strategic guidance to help entrepreneurial businesses scale, improve operational efficiencies and navigate complex market dynamics.
Be Clear About the Motivation
There is no straightforward answer that will address the million-dollar question if a company should go public or stay private. Suffice to say that there is a range of fund-raising options that appeal to different motivations.
Ultimately, investors will always follow a good story. Clarity of the business’ near-term goals and long-term ambition, as well as the owner’s aspirations, is imperative to securing the right capital and growth strategy.
Conclusion
In conclusion, going public or tapping private equity, companies must be clear about their motivations and goals. Whether it is to raise capital, expand into new markets, or provide an exit opportunity, companies must carefully evaluate the pros and cons of each option.
FAQs
Q: What are the benefits of going public?
A: Going public can provide access to permanent capital, improve brand visibility, and attract and retain talent.
Q: What are the benefits of tapping private equity?
A: Private equity firms can provide substantial financial resources, expertise, and networks to help entrepreneurial businesses scale and thrive.
Q: What are the key factors to consider when deciding between going public and tapping private equity?
A: The key factors to consider include the company’s purpose, goals, and aspirations, as well as the availability of capital and market conditions.
Q: What are the potential risks of going public?
A: The potential risks of going public include the challenges of complying with regulatory requirements, managing shareholder expectations, and navigating volatile market conditions.
Q: What are the potential risks of tapping private equity?
A: The potential risks of tapping private equity include the potential for loss of control, the need to adapt to the private equity firm’s strategy and direction, and the potential for conflicts of interest.
