As a company grows and eats into the competition’s market share, one question that the owners must answer is whether or not to go for an IPO. Through an IPO, business owners are able to raise significant capital to finance business expansion, recoup their investment and give their firm an actual market value based on the stock prices the shares will be trading at after the IPO. More people will also be willing to invest in the business as they will have an open market through which they can liquidate their holdings in the company.
There are two main ways a private company can get listed on the securities exchange. The first option is acquisition of all the stocks of a publicly-traded company. After the acquisition, the shares of the newly merged entity will be traded freely on the open market. The second option is an initial public offering, which is commonly referred to as an IPO.
IPOs do not come cheap. This is because there is a registration fee charged by the securities exchange where the shares will be offered to the public for the first time. Secondly, there are pre-IPO fees, such as accounting, auditing and legal fees. There must also be a transaction adviser, who will also charge a fee for their services. Simply put, IPOs can be incredibly costly, hence the need for IPO corporate finance options.
The following are some of the main benefits of an initial public offering:
Build Brand Reputation
Public companies are often required to make regulatory filings, hold shareholder meetings and provide the public with accurate information about the status of the business. Therefore, an initial public offering will help to build your brand recognition and reputation. Over time, this will translate to more business, greater investor interest and many other wonderful things for your business.
Determine Market Value
The market value of a company is determined by a number of things. For starters, the difference between the assets and liabilities will determine the value. The profit generated by the business will determine its price. Thirdly, the strength of the brand of a company will contribute towards its market value. Before a company goes public, however, the share prices may be undervalued. After going public, however, the market will set or determine the market value. After all, the stock price may increase considerably or go below the offer price based on demand and investor perception of the company. When you want to accurately value your business, therefore, you should consider an IPO.
Liquidate Your Shares
The founder of a business may own a significant stake in the company, but they may not be able to sell the shares at a decent price. While private placements can help founders to liquidate their holdings, the returns they get may not be what they expected. Therefore, initial public offerings are highly recommended for entrepreneurs who would like to partially liquidate their shares. Getting proper legal advise is highly recommended before you make any decisions.