Floating: an important choice

The Stock Exchange has been helping to finance companies and provide a market for their shares, for over 200 years. For companies of different types, nationalities and sizes, the market has offered access to a deep pool of investment capital, while bringing share buyers the benefits of a transparent and liquid market on which to trade.

Most successful privately-owned companies would ultimately reach a level where they consider whether to list their shares on a public market. In making this decision, they inevitably face a complete series of fundamental questions about their future. Possibly the company has venture capital backers or family founders looking for a chance to realise part of their investment. Or perhaps the business’ growth plans are being constrained by a lack of finance.
Definitely, a flotation may provide solutions to challenges like these. Going for a floating is one way to address these challenges – and companies need to study all the options before deciding which is the most suitable. Even when a flotation appears the best route, the company must give careful consideration to the pros and cons involved, and to the longer-term implications of being a listed company.

The choice on whether or not to list your company’s shares on a public market is a serious one. It must be based on an fair and realistic assessment of your company, its management resources, its stage of development and its prospects. And it must be made after full consideration of the alternative routes by which your business might gain its goals.

The precise circumstances which prompt a company to consider floating vary in every case. It may simply be a shortage of capital for expansion, with the sources of finance which have taken the business this far – such as banks or existing shareholders – now unwilling or unable to put more money in. There may be existing shareholders, especially venture capitalists, looking for the opportunity to realise part of their investment.

The company may also want to tie in key staff via employee share ownership schemes, and give them a liquid market on which to trade their shares. Marketing issues may also be influential, since a private company may often find itself at a disadvantage if the majority of its competitors are listed, due to those competitors may be seen by customers and suppliers as being more financially trustworthy.

As well as improving the perception of a company’s financial stability and transparency, a quote on a public stock market also demonstrably increases the profile which a company receives in the press.

Any or all of these factors may help to shape the ultimate form of your decision. For instance, a cash-generative business may currently have no need of beyond finance – and many companies opt to join the market without raising any additional capital. In these situation, the other advantages are seen as justifying the costs of the listing. But even in these cases, there is the advantage that the opportunity for future capital-raising via the stock market is opened up. And, as an overall rule, access to capital is a major stimulus behind most companies’ decisions to float on the market.

“A Practical Guide to Listing on Stock Exchange” Company EYE

Company EYE

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