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Shouting It From The Rooftops

An initial public offering (IPO) allows a company to issue stock to the public and have it traded on a stock exchange. A company should consider going public when:

  • the company ‘s financing plan shows a need for equity capital
  • private equity capital is unavailable and existing investors want an exit
  • the market places a high value on the company’s equity
  • current owners are willing to accept both the drawbacks and advantages of being a public company
  • the company is qualified (in terms of size, management, use of proceeds and adequate market valuation)

Advantages
Some of the advantages of going public include:

  • improved financial condition
  • stock can be used as a form of currency to be used for future acquisitions, or creating business alliances
  • acquisition funding opportunities access to future equity or debt capital

Disadvantages
The disadvantages of going public must also be considered:

  • pressure to keep the stock price up
  • stock prices can also fall
  • potential limitations on activities
  • ongoing reporting responsibilities
  • additional risk exposure
  • costs of issuance
  • ongoing expenses
  • potential loss of control for the current owners

 

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