AN initial public offering (IPO) is the first sale of stock issued by a company to the public. Companies often use an IPO to generate more capital and publicity for the company, helping it to grow it further.
How should a business maximise chances for a successful IPO? Mentor John, who incorporated and floated Cerebos Pacific on the Singapore Stock Exchange, shares his answers:
Q: What are the key factors for consideration, in deciding whether to go public, or remain private?
A: You take a company public to raise funds for faster expansion, to spread the risk of the initial investors to a wider public or so that those who first invested can realise some of their gains and mitigate their own investment risks.
Choosing the time to go public involves combining considerations of the organisation's needs, the market prognosis, the activities of competitors or potential competitors and technological developments that may benefit or disadvantage the business.
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Going public can be seen as a statement of confidence in the future or fear that the market is going to become even more competitive. A successful IPO, involving a full- or over-subscription for the shares on offer, will enhance the value of the business. One that is less successful may reduce the business's value.
Q: One of the first steps in taking a company public is to choose an adviser, possibly a merchant bank. What's the selection criteria?
A: There are many advisers you can engage to help you with the process of going public. An experienced merchant bank with a record of successful flotations is usually the main adviser of choice.
Check their experience of launching IPOs to ensure that they have a successful record. They should also be familiar with the industry you are in.
Since trust is a key requirement, it is helpful if they already know you or some of your directors and are able to demonstrate an understanding of your purpose and objective in going public.
They will know the best public relations firm to use and may also advise you on the lawyers who will be most experienced in your industry.
Q: How do I manage the transition from a private to public company - both for myself as well as my team?
A: Going public requires a change of mindset. You are now under the microscope of the stock market, of regulators and of your shareholders. You must formulate policy views that have been unnecessary. You must decide what you will tell the public about progress during your financial year.
You need quick answers to criticisms about the product or service you are selling, about anonymous whistleblower reports of your company managers' behaviour, of the competitive situation in the market and of technological developments affecting your business.
Changing a business culture from being private and knowing shareholders personally to being public and scrutinised by the media is a challenge.
Where informality was previously acceptable, the new scene demands conformity to disciplines that can be time-consuming. Patience is needed to tolerate public shareholders who know little about the history of the business.
Get your senior staff to mix with shareholders at the Annual General Meeting or an Open Day. Risks associated with this approach are small compared with the benefits gained.
How you handle shareholders determines to a considerable extent what your share price is. Shareholders and potential shareholders prefer truth to spin.
Q: My investors are pushing me to bring the company public, in order to get their ROI (return on investment). However, I feel that we can grow the company better with more control. How do I handle this discussion?
A: Your investors have a right to tell you what they want from their investment and when they expect to get it. Rather than negotiate the timing of an IPO, I suggest that you ask them to write down their requirements and the reasons for them. Make sure your forecasting is reasonable and that you can explain your reasons for it.
Shareholders who trust the CEO of their investment are usually reasonable about timing an IPO. Making money is a consequence of a successful business; it is not a viable purpose for a business.
- Do you have questions for Mentor John on how to improve your business or your prospects? Send them to firstname.lastname@example.org
- John Bittleston is founder mentor and executive chairman of Terrific Mentors International