The decision to transition from a private to a public company through an Initial Public Offering (IPO) is a momentous one for a business. It opens up a world of opportunities, but it also comes with its own set of challenges and responsibilities.

For this blog, we will explore why a private company would consider making the leap to becoming publicly traded entities, outline the steps involved in an IPO on the Australian Stock Exchange (ASX), and discuss the pros and cons of seeking an IPO.

Why Consider an IPO?

Going public can offer numerous advantages for a private company. One of the primary reasons companies seek an IPO is to raise capital. Going public allows a company to access a broader pool of investors and raise funds by selling shares to the public. The capital can be used for expansion, research and development, debt repayment, or other strategic initiatives.

A public listing can significantly enhance a company’s visibility and credibility in the market. It often leads to greater media coverage and investor attention, which can attract customers and partners.

Going public can create opportunities to reward employees through stock-based compensation plans, such as stock options and grants, which can be a powerful tool for attracting and retaining talent.

Publicly traded shares can be used as a currency for strategic growth initiatives, such as acquiring other companies or raising capital for expansion.

An IPO provides an exit strategy for early investors and founders who may want to cash out their holdings or reduce their stake in the company while retaining liquidity.

Being a publicly-traded company can make it easier to participate in mergers and acquisitions, as company shares can be used as a currency for acquisitions.

Disadvantages of an IPO

• Regulatory Burden. Public companies must comply with extensive reporting and disclosure requirements, increasing administrative and compliance costs.
• Loss of Control. Going public often results in a loss of control for founders and early investors, as public shareholders have voting rights.
• Short-Term Focus. Public companies may face pressure from shareholders for short-term results, which can hinder long-term strategic planning.
• Market Volatility. Publicly traded shares are subject to market fluctuations, which can affect shareholder value. In some cases, even misconduct can kill the stock prices, as what happened in January 2023 when US activist investment group Hindenburg Research uncovered a decades-long accounting fraud operation at India’s Adani Group, which invests in the Carmichael coal mine in Queensland.
• Disclosure of Information: Public companies must disclose sensitive information, which may include competitive secrets, to the public and competitors.

The IPO Process on the ASX

The Australian Securities Exchange (ASX) is the primary stock market where companies seek to go public in Australia. The following is a simplified overview of the steps involved in the IPO process on the ASX.

Preparation

Engage legal, financial, and accounting advisors to guide you through the IPO process. Ensure compliance with ASX listing requirements, which include minimum capital and asset thresholds, financial recordkeeping standards, and corporate governance standards.

Due Diligence

Conduct thorough due diligence to prepare the company for public inspection. This includes auditing financial statements, evaluating legal and regulatory compliance, and assessing corporate governance.

Appoint Advisors

Select underwriters, legal counsel, and auditors who specialise in IPOs to help navigate the complexities of the process.

Prospectus Preparation

Draft a prospectus, which is a legal document that provides potential investors with detailed information about the company, its financials, risks, and future prospects.

ASX Application

Submit an application to the ASX, which includes the prospectus and other required documents.

Investor Roadshow

Conduct a roadshow to market the IPO to potential investors, both institutional and retail. This involves presentations and meetings with investors to generate interest in the offering.

Price Determination

Work with underwriters to determine the offer price of the shares. The price should reflect market demand and company valuation.

IPO Day

On the day of the IPO, the company’s shares are offered to the public for the first time. Trading begins on the ASX.

Post-IPO Compliance

After going public, the company must comply with ongoing reporting and disclosure requirements, including regular financial reporting and updates to the ASX.

Is an IPO Right for your Company?

Deciding whether to go public is a complex and significant decision. It requires a thorough evaluation of your company’s financial health, growth prospects, and readiness to meet the demands of public ownership.

An IPO can be a strategic move for private companies. However, it also comes with regulatory and financial responsibilities that should not be taken lightly. Consider seeking advice from financial and legal professionals with experience in IPOs to help you navigate the process and make an informed choice.

Careful consideration and expert guidance are essential for companies weighing the decision to go public.

DISCLAIMER: This article is for informational purposes only and is not meant to constitute official stock market advice. BARTERCARD has no relationships with any publicly-listed companies or stock exchanges. Please consult a business coach or corporate solicitor.