Expert view: Weighing up all options

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Going public and undertaking an initial public offering (IPO) is still an attractive prospect for SMEs and companies on the rise.

By Jennifer Bell, corporate associate at Forbes.

It’s a rite of passage – when a company receives that external validation that they have really ‘made it’.

Of course, there are a number of advantages beyond this.

Listing on the London Stock Exchange alone undoubtedly raises the profile of a company, and encourages faith in their financial position and capabilities.

More participators in the company and a market for shares to be traded on are benefits that can continuously be exploited as time goes on.

While the promise of an influx of capital and public awareness to boost finances and presence is alluring, an IPO is no yellow brick road to success.

Where an IPO fails and the leap to go public flops, businesses are put at very real risk, and they could suffer serious consequences.

Companies planning to go public must be prepared to be more transparent about the financial standing of the business, and much of its activity behind the scenes.

In addition, during the initial IPO process and constantly afterwards, the company must comply with more stringent reporting requirements. This reduction in privacy may not be ideal for companies that are used to or prefer less disclosure in general.

For local businesses and many SMEs, attaining an IPO also must be weighed against the control factor.

Being a listed company may mean having a place in the open market but it also means being vulnerable to any adverse changes that come with it which may be outside management’s hands and often outside their previous experience in business.

Additionally, the sale of shares can also equate to a loss of control over time, often to an undesirable ‘suitor’.

Financing your business via private equity (PE) funding as an SME is often the best move to consider in the first instance, and in our experience – and across the country – it’s on the rise.

Reporting to a set number of chosen and committed investors allows retention of control for the company and the ability to continue business without outside influence.

Not going public doesn’t mean the business is not successful. The costs alone of the IPO process are well worth thinking twice about – the markets are already populated with smaller companies that could not sustain the race and are in a worse position than before transitioning.

Overall the preferred path for now may be to continue on the route of private equity financing. Until your business is ‘big’ enough to have no qualms of committing time and large amounts of funding this will the most beneficial decision long-term.

Remember there is still a choice – you can always go public when it will truly be the most advantageous decision for the company, rather than for the feeling of legitimacy or the false promise of a quick gold rush.

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