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Many successful businessmen ask “what factors should I consider in taking my company public?” Some companies benefit greatly from being publicly traded while others, after the proceeds of a public offering are gratefully received, languish in obscurity never able to tap the markets again for needed capital and burdened by the disclosure and other requirements of being a public company.
A big factor for management to consider is what the markets value and therefore reward. The simple answer is growth; but almost as important is consistent, predictable growth, not episodic, uncontrollable growth followed by long periods of flat results or digestion of prior transactions. Growth funded only by diluting equity is also not favored.
In order to meet the market’s expectations, companies must organize themselves for consistent growth. Clearly, a family-owned company satisfied with its market position and maintaining a level of cash flow necessary to keep family members happy, is not a prime candidate for an IPO. A private company seeking to go public should be imbued with an entrepreneurial spirit that has identified growth opportunities for its business but lacks only the capital to realize its dreams.
Management should be prepared to take significant risks and devote tremendous energy to realize a growth-oriented business plan. Putting together such a business plan is an essential element of the public offering process. It requires not only an understanding of the company’s market opportunities but a “bottoms-up” analysis of what it takes to organize the company to meet the challenges of creating profitable growth. In addition, a corporate culture must be fostered that makes realization of the business plan an attainable goal. Everyone is the organization must understand how they can contribute to the realization of the company’s goals.
It certainly helps if macro-economic trends support the company’s growth plan. For example, those companies that can establish themselves as low cost producers able to penetrate foreign markets are likely to find favor in the public capital markets, especially if growth in the U.S. economy is stagnant.
The categories of companies which the market has been interested in taking public is as follows:
Only in the first instance is a demonstrated history of profitable growth a prerequisite. It is primarily future profitability that the markets focus upon.
Management must realize that there are alternatives to raising capital through an IPO and often these alternatives should be explored first in order to better position the company for a successful IPO. These can be summarized as follows:
In going public, the company realizes several objectives:
Going public is not for every growing business. First and foremost, being public creates a new list of requirements that must be met by the company. Although the burdens of meeting these obligations fall mostly on the chief executive and chief financial officer, to some extent, they affect everyone.
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