There are many viable options when positioning a business for growth. Expansion generally requires additional capital; One way to attract the interest of potential investors and funding sources is to take the company public. Even new, early-stage, and small companies can effectively and inexpensively go public through an Alternative Public Offering (APO). In many cases, an APO is more attractive than the venture capital or angel investment route. APOs are also a cost-effective means of going public compared to a conventional IPO or reverse merger (an alternative public offering also removes the risks associated with reverse mergers).
The advantages and benefits of being a Public Company
For business owners and their investors
oh Liquidity. Bringing a company public provides liquidity for owners and investors. The liquidity of privately owned shares is not as high as that of public shares. The liquidity factor will enhance value for investors by allowing them to diversify their portfolio and have a defined exit strategy. Not only are there benefits for owners and investors, but lenders are more likely to extend credit to public companies.
oh employee benefit. Taking a company public can result in financial rewards and independence not only for owners and investors, but employees can also benefit by becoming shareholders.
oh estate planning. If family members are counting on the owner to support them in the future, shares in a publicly traded company can be used as part of a retirement strategy. These assets will allow for financial freedom for the family after the owner is out of the picture.
To the company
oh Access to the capital. Taking a company public will provide potential investors with confidence in the company, which will translate into the ability to raise money.
oh Fusions and acquisitions. If a component of your growth strategy is to pursue a merger or acquisition, the ability to achieve these goals is increased as a public entity. Shares sold in the company will equal cash to the other company. If a merger or acquisition agreement is being pursued using shares, the current market value of the shares may be used to effect the transaction.
oh Compensation for your employees. The attraction and retention of key employees can be achieved by allowing employees to reap the same benefits as owners by becoming shareholders. This can also be a factor in why these key people decide to stay with the company, especially if the industry has a high turnover rate. This can make all the difference in retaining key employees.
oh Attract Executive Management. Taking a company public will attract and retain high-level executives. While offering stock in a private company is an option, publicly traded stock is often more valuable and desirable to your future and present executives.
oh Give your employees the incentive to work harder. The liquidity of public shares allows employees to earn higher rewards. They will feel like they are an integral part of the company with income based on performance instead of just a paycheck. By making employees co-owners, corporate momentum is increased, making the company the best it can be. The incentive to work harder makes the company stronger, and in turn, everyone is rewarded when the stock price rises. This incentive links the future and dedication of an employee with the success of the company.
oh Public companies are generally worth more than private companies. In many cases, the increase in value is quite substantial. A public company will almost immediately see an increase in share value after going public.
Process planning and management is important for success
It is important for the business and business owner to understand that taking a business public, even using a simple and cost-effective method like an Alternative Public Offering, can be a complex and confusing, yet manageable process. These are the phases of the process that the company and the IPO consultant must follow (and that must be managed):
Pre-Public
o Phase one: analysis of the client’s company in preparation for going public
o Phase two: SEC filing and audit process using form SB-2
o Phase Three: Obtain the Stock Symbol and List on the OTC Bulletin Board
Post Public
o Phase four: investment banks and equity lines of credit for new public companies
o Phase Five: Getting Your Shares Traded with Investor Relations and Press Releases
o Phase six: grow with acquisitions, licensing and strategic relationships
o Phase Seven – Upgrade to a Senior Exchange (NASDAQ or AMEX)
And ultimately, business owners need to plan for:
o Phase eight: exit strategy of the founder (sale of his entire company or just his shares).
A good team is crucial for long-term success
Before going public, it is essential to have a great team to manage the process and ensure that the company competently manages and executes the business plan for growth. This team should be made up of different professional resources both inside and outside the company, including attorneys familiar with the process and an IPO consultant who can facilitate the process of taking a company public. Make sure you put the right people in the right jobs to help your business reach its potential.