Going public is an important decision to be taken by the shareholders of a company, since it impacts and changes its organizational structure, its corporate governance, and requires financial and managerial information disclosure to all the market.
On the other hand, when going public, the company has, for example, access to further financing sources, possibly cheaper, and it can use its own shares to purchase other companies.
As it is a usually long and challenging process, it is essential for the company to be well assisted by an institution specialized in such operations.
The decision to go public
The market considers going public takes place when offering shares to the public for negotiation in Stock Exchanges or organized over-the-counter markets. This way, the decision of a company to go public must be based on an analysis of its convenience, considering the benefits and the costs to go public, in addition to evaluating if the organization's profile and culture are fit for becoming a company traded in Stock Exchanges
Shareholders choosing to go public are usually looking for:
- extension and diversification of financing sources for company growth and modernization;
- management professionalization;
- property diversification;
- consolidation of brand positioning;
- total or partial separation of one or more business units.
Advantages
When selling shares, one must analyze if admitting new investor members will make the current members and the business itself wealthier. If so, other advantages are:
- Having access to the capital market and obtaining resources for financing investment projects. Financing through capital market is almost unlimited and as long as the company has feasible and profitable projects, investors will be interested in financing it.
- Creating references for business assessment, as after going public, the company start to be often assessed by investors.
- Encouraging the company professionalization. The process is a consequence of different legal provisions, in addition to the possibility of electing directors representing new shareholders.
- Strengthening the organization's relationship and institutional image. After being listed in the Stock Exchange, the company has its visibility, and, as a consequence, perception and public recognition increased.
- Using the shares traded in stock exchanges as means to pay the purchase of other companies.
Disadvantages
Once the shares are traded in stock exchanges, the pressure for better results is immediately felt. Professionals at the company and/or external assistance must consider the disadvantages of going public in order to understand if it is the right choice. The inconveniences of this process may be:
- high costs related to the process for going public;
- increase of recurring expenses and compliance costs;
- need for restructuring management and creating investor relations.
How to go public
To start the transformation, the company must make an IPO (Initial Public Offering). It marks the launching of a company in the Stock Exchange, when it introduces itself to possible members, making a share offer in the market.
For many companies, this procedure may seem expensive, but issuing these shares is one of the means organizations can count on to raise resources and attract shareholders' interest. In addition, an institution can get more reliable through such process, as the market understands a publicly-traded company presents a higher and more transparent corporate governance degree.
Creating an IPO is something that needs planning and time – the process can take up to one year. For this reason, companies are recommended to look for financial consultants and plan the IPO in advance in order to go public at the right time. The expert team at Banco de Investimento Master can help you with this analysis and preparation.
Among the costs included in going public are: legal and institutional expenses, marketing for announcing the operation, financial intermediation (coordination and distribution), lawyers and auditors, internal company expenses (process follow-up and internal structuring) and other costs with consultants.
Now that you know how companies go public in Stock Exchanges, it is easier to define the next steps for your company, right?
The role of the investment bank in the IPO coordination
Regulation requires public distribution to be coordinated by a financial intermediate. This institution, which usually is an Investment Bank, is responsible for coordinating the process for registering the IPO, the offer schedule, pricing, and the plan for distributing and organizing the operation presentation to the market.
The decision and analysis process for making an IPO is not simple, but we from Banco Master de Investimento offer a complete structure for helping you make the right choice. Do you have any questions? Please, contact our team, and we will be pleased to help you.