2008 and 2009 were notoriously lean years for public listings in the UK. However, 2010 could bring a new era of popularity for initial public offerings (IPOs) as companies look for alternatives to the continuing challenging debt market.
Although banks are cautiously opening their books, credit controls are tight and the cost of debt continues to be expensive. In response, companies are looking to public equity markets as an alternative fundraising source to help expand their businesses and widen the public perception and market for their products and services. A public listing could be better value than debt funding or private equity investment for companies with significant capital fundraising requirements.
Meanwhile, private equity funds and venture capitalist investors see IPOs as a way of restoring balance sheets. In an economic climate where acquisition debt finance can be hard to find, private buyers are few and far between. A public listing could therefore be the best way to achieve investment exit strategies.
In deciding whether an IPO is the best option, it is important to consider whether the advantages of listing would outweigh the disadvantages. The main advantages and disadvantages to a public listing are set out below.
- Raising funds through the IPO and increased access to future capital.
- Ability to use publicly traded securities as acquisition currency in the future and as incentives to employees through employee share or option schemes.
- Increased liquidity for shareholders.
- Increased market profile and prestige for the company.
- Increased disclosure, corporate governance and compliance requirements.
- Demands on senior management time during the IPO process and as a result of the company being in the public spotlight.
- Increased liability exposure for the board of directors and the company.
- Less flexibility and control in managing the business as investor shareholders demand high performance and good returns.