Is an IPO Right for Your Company?
    Category: Column By : Jasmin M. Maranan Read : 139 Date : Tuesday, April 10, 2018 - 00:01:06

    Is an IPO Right for Your Company?

    Going public is a transformational event for a company, changing how it conducts its business, imposing new regulations and greater public scrutiny. More positively, an IPO provides a company with access to deeper and more varied pools of capital. While the benefits of an IPO make it very attractive, it is also critical to understand the challenges and, potentially, the glitches. Here are a few considerations to think about when deciding whether to go public:

    Benefits

    Challenges

    Increased access to deep capital pools

    --- Accessing public capital markets in order to raise money helps to goals such as increase working capital, invest in plant and equipment, and retire debt. Listed companies can opt for follow-on offerings, which require less preparation time, and potentially borrow on more favorable terms.

    Increased expenses

    --- The costs of going public include underwriting fees, legal and accounting fees, and the cost of the filing itself (such as paid to OJK and IDX), as well as any other fees. New expenses may include hiring new employees for the added finance and reporting responsibilities, as well as investor relations.

    Enhanced reputation and brand

    --- Visibility for shareholders and their company is usually enhanced. For example, a company is likely to find it easier to expand regionally following a share offering, due to its increased visibility.

    Loss of privacy

    --- The registration statement and the subsequent filings require disclosing information not made public before. As a public company, this information can be seen by rivals, customers, and staff.

    Increased market value

    --- Public companies tend to be valued higher than comparable private firms, as investors have more transparency and information than from a private firm.

    Pressure for performance

    --- Once a firm is public, shareholders expect steady growth in areas such as sales, profits and market share. Management is under constant pressure deliver results, both short-term and long-term.

     

    Ability to attract and retain key personnel

    --- Publicly owned companies can provide employee incentives and benefit plans with share ownership, such as stock options, to help attract and retain key personnel.

    Loss of control

    --- Adding public investors introduces a new group of demanding owners to which management and the board will be accountable.

    Liquidity/exit strategy

    --- An IPO provides existing shareholders a chance to liquidate their shareholdings. Existing shares may also be used as collateral to secure personal loans. The owners’ desire to cash out, however, should be balanced with funding future growth.

    Investor relations

    --- Managing investor and public relations, such as producing quarterly and annual reports, require a significant time commitment from management.  They also often require additional public relations personnel and resources.

    Mergers and acquisitions

    --- Shares can be used to acquire other businesses, allowing firms to conserve cash and avoid incurring extra debt.

     

    Owners (and other stakeholders) need to carefully examine their objectives to see if an IPO is right for their firm. Is the IPO intended to raise capital to fund growth? Is it for succession and estate-planning? Going public is akin to a person’s “coming of age”– changing from one form, a child, to a new one, an adult. As it only happens once, it is extremely important to do it right.

         *************************     

    JASMIN MARANAN IS AN ADVISER FOR PWC INDONESIA

     



    `