GOING public is a monumental decision for any company. The process of an initial public offer (IPO) can be time-consuming, expensive and can shift management focus away from day-to-day operations. To make an informed decision, an IPO aspirant must understand and consider the common issues involved.
One of the main reasons for seeking a listing is to raise funds, but it is not the only way to do so. Other options are a private placement of shares with a specific financial institution, a contribution by a venture capitalist, or taking a loan, say, from a bank.
Should you go public?
For all the 'glamour' associated with going public, the fact remains that the decision to do so should be based on business reality.
As the owner or shareholder of a private company, you must weigh the advantages and disadvantages of going public in the light of the plans and goals you have set for your company. Discussions with lawyers, auditors and other professional advisers will help you arrive at a considered decision.
The advantages of going public are:
Increased capital
Improved financial position
Reduced personal funding and guarantees
Public company status
Marketability of shares
Business succession
Better employee morale and productivity
The disadvantages of going public are:
Increased pressure to improve growth and maintain profit
Disclosure of information and additional compliance requirements
Dilution of control
Listing cost
Are you ready to go public?
Companies that are ready to go public generally share certain characteristics. Most have progressed beyond the start-up phase, are profitable and have significant growth prospects.
The public market readily accepts companies that have the following:
A track record of revenue growth
Capable leadership
An experienced and credible management team
Operations in a strong industry with potential for high performance
A mainboard listing involves a potential applicant meeting certain quantitative requirements, while a Catalist listing does not involve any quantitative entry criteria. Catalist is a 'sponsor-supervised' market in which sponsors decide if an applicant is worthy of a listing. To remain listed after an IPO, a company must engage a sponsor at all times.
Listing process in Singapore
The timing required for listing varies with companies and depends on the complexity of their operations and the restructuring process undertaken before listing. A professional services company like Deloitte can provide companies with the necessary guidance and advice at each stage of the listing process.
Professionals and advisers
There is a cost for listing on the stock exchange. Professional fees have to be paid to: lead managers, auditors, lawyers and public relations firms involved in the launch. These professionals play an important role throughout the IPO process by way of advice to ensure a company's shares are successfully listed.
As going public requires careful planning and consultation with professional advisers, we recommend professional advice always be sought from an early stage. The following are the key professionals involved:
Underwriters/lead managers
The underwriters' commission is the largest single cost of going public and depends on the size of the IPO, the type of underwriting, the going rate for offerings of similar size and complexity, and the perceived effort to sell the stock. A company seeking a listing also needs to appoint a lead manager to manage its listing process. The lead manager must be a member company of the Singapore Exchange (SGX), a bank, a merchant bank or similar institutions acceptable to the Singapore Exchange to manage the launch and liaise with SGX on all matters arising from the application to list.
Sponsors
Sponsors are qualified professional corporate finance firms authorised by SGX who will determine the suitability of a company to list on the Catalist and supervise the listed company's compliance with continuing obligations.
Reporting auditors
Certified public accountants with experience in IPOs will give you an initial evaluation of your state of readiness to go public, and help you upgrade management capabilities.
Lawyers
Lawyers experienced in security offerings are needed to look after the legal aspects of a launch.
Public relations firms
PR firms experienced in working with the business media and securities analysts can be engaged before and during an IPO to help enhance the appeal of your company to the investing public and convey your corporate messages effectively.
IPOs are for everyone. It is every investor's goal to pick as many future winners as possible and to avoid the companies that are deemed not to make the grade. As IPOs represent the forces of economic activity and development, they are an attractive means of making direct investments for the future.
The writer is chief of operations (clients and markets) of Deloitte Singapore and heads its IPO Group. He can be contacted at ekan@deloitte.com
This article was first published in The Business Times on October 07, 2008.
