Is Publicly Listing Right For Your Business?
Our Corporate Finance team often advises businesses throughout the listing process. Some owners we speak to have a preconceived notion that listing is automatically the ultimate goal for any business. Lured by the spotlight that listing provides, we are often asked when the best time to list is. While answering the ‘when’ is an important decision, the more vital question and an often too frequently overlooked question is the WHY!
There are of course many advantages of publicly listing:
- Path to capital – largely due to our superannuation system, Australia has one of the largest pools of investible funds in the world. This capital can be used to either fund growth, capital expenditure or pay off existing debt.
- Spotlight – listing enables your company’s activities to receive greater coverage, widening awareness of your products and services. This increased profile may serve and sustain demand for your company’s shares and increase the standing of your business within its industry.
- Access to liquidity and enable shareholders to realise value – owners thinking of listing have worked hard to get their business in that position. Listing can provide an alternative path to enable owners to get “money off the table”.
- Strengthen capital base – follow on capital raises are more simplified and easier once listed.
- Provide de facto third-party valuation by the market – the market values shares based on future expected cash flows and available information. This type of valuation is not possible without listing.
- Allow increased alignment of employees/management – this is done through simplifying remuneration and share-based pay, enabling you to attract and retain high-quality employees.
Why listing may not be appropriate:
- Not able to meet listing requirements – your company must meet several listing requirements noting that these requirements are not exhaustive nor guarantee a successful listing. These include satisfying the Australian Stock Exchange’s (ASX) profit or asset test, having at minimum 300 non-affiliated investors and a free float of 20%.
- Substantial cost – the cost of listing on the ASX can be substantial. This is largely dependent on size, complexity and degree of marketing required. Costs can be minimised however by working with advisers with IPO experience. Listing costs are likely to include legal, underwriting or brokerage fees, accounting, and other professional fees, as well as prospectus costs and ASX listing fees.
- Post listing requirements – forced and a high degree of continuous disclosure and increased corporate governance once listed.
- Increased Directors’ responsibility.
- Dilution of decision making and control.
- Exposure and susceptibility to market forces.
Even if listing is not the best strategic option, there are many other avenues for strategic growth and/or to realise value. These can range but are not limited to:
- Sale to strategic buyer;
- Private Equity;
- Venture Capital;
- Management Buyout;
- Refinancing and unlocking cash flow;
- Joint Venture or Strategic alliances;
- Dual-track approaches; and
- Alternative Public Offering (APO).
Going public or choosing an appropriate strategic avenue is a huge decision for any company. How do you know which path is the right one for you and your business? To help you decide which pathway is best, reach out to our Corporate Finance team.