If your business is looking at future strategy and the next stage of your growth journey, you may be curious about IPOs. This article answers the six questions which our specialists in commercial finance and IPOs are most frequently asked by ambitious businesses.
What is an IPO?
An IPO (Initial Public Offering) is the process in which a private company offers its shares to the public in a new share issue for the first time and applies for its shares to be admitted to trading on a stock exchange.
An IPO is a transformational event. It is an exciting and rewarding stage in a company’s development and continues to support the strategy of those businesses and their stakeholders. However, it is not necessarily the right option for every company.
Why IPO?
With alternative sources of funding available, increased regulation and compliance, together with challenging market conditions, an IPO may not seem like the most attractive option. There comes a point, however, in a company’s lifecycle when joining a public market is a natural next step.
Whilst being a public company brings greater public scrutiny, regulation and cost, a successful IPO enables you to:
- Access new sources of long-term capital both at IPO and through further fundraisings once listed
- Deliver value to existing investors
- Incentivise employees through corporate share option schemes and other long-term incentive programmes
- Heighten credibility and profile, nationally and internationally
- Retain control
- Have objective market value and potential acquisition currency
Where to list?
Stock markets are increasingly international. While an IPO on a company’s domestic market is the route chosen by the majority of businesses, listing on an international market is increasingly common.
The London Stock Exchange (LSE), unlike other exchanges, has a choice of markets for companies at different stages of their growth cycle: AIM and the Main Market. For fast-growing scaleup companies, Aquis Stock Exchange also provides a route to IPO.
When?
Market conditions may not be immediately favourable, and IPOs can take many months to execute. By preparing well in advance, a business will have the opportunity to take advantage of the IPO window when it does open, thereby achieving a successful transaction and valuation.
The IPO execution process from kick-off to admission can take 6-9 months, with many successful IPOs planning and preparing for a transaction 12-18 months beforehand.
The process takes time – often, longer than you think.
How much does it cost?
Short answer: it depends, and is often more expensive than you might expect!
Longer answer: factors include the complexity, nature and size of the business, as well as how ready the company is for the transaction and being a public company.
The direct costs of an IPO comprise fees paid to the sponsor/nominated adviser (if AIM), broker, reporting accountants, lawyers, financial PR firm, LSE and registrars. These can be as much as 8-10% of any money raised at IPO.
In addition, there are the recurring costs to be incurred in maintaining the listing status. These relate to the retention of your advisers above, auditors, tax advisers, remuneration consultants, investor relations and non-executive directors.
Where do I start?
The key to a successful IPO is preparation.
Once you have made the decision to go public, you need to determine how ready you are to begin the process. You will need to have a well-thought-out business plan and a compelling equity story. You will also need to assess where you stand against the attributes of being a successful public company.
Being ready also means having a strong management team, plus sufficient time and resource to dedicate to managing the process – all while continuing business as usual.
How we can help
CFPro, our specialist commercial finance team, have successfully guided numerous businesses through the IPO process, including household name Fever-Tree. The experience within our team gives our clients the confidence that they will have the senior finance support necessary throughout this exciting stage of their business’s development and beyond.
If you are considering a future IPO, get in touch today for a chat about how CFPro can help you.