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An initial public offering (IPO) is the process of offering shares of a private company to the public. This can involve (i) the offer of new shares which raises new funds for the company or (ii) the sale of a portion of existing shares which enables existing shareholders to monetize their shareholdings in the company.
Raising funds from an IPO is an attractive option but one should consider whether it is suitable for your company due to the complex nature of the undertaking.
Benefits of an IPO
- Raising capital: Companies often use an IPO, which is their first public share sale, to get the funds they need for growth. The company can use it to fund acquisitions, capital expenditure or repay debts. After the IPO, a public company may tap on the markets for additional funding through share placements or rights issue.
- Boost image and visibility: An IPO can bring the company to the attention of a new set of customers. A listed company often has a sheen of prestige to it, which can attract new talents to the company, new business opportunities and partnerships.
- Rewarding employees: A public company can distribute shares as payment for their employees, enhancing compensation and further aligning their interests with that of the company.
- Monetisation: An IPO provides an opportunity for existing shareholders to sell a portion of their shares. It is also easier for shareholders to obtain financing on publicly traded shares as compared to shares of a private company.
- Issue shares for acquisitions: In acquiring a target company, a public company can consider offering shares as consideration for the acquisition. The seller will tend to be more willing to accept shares of a public company as compared to a private company and reduces the cash requirements for the acquisition.
Despite the advantages of going for an IPO, there are other factors a company should consider prior to making the decision.
- Time and money: The IPO process requires a significant amount of time and money. You need to consider whether your staff is able to handle the preparatory work for an IPO on top of their daily duties as well as the cost of going public, as professional fees and other expenses can take up a substantial portion of the funds raised from the offering.
- Public disclosures: Public companies have to publish their financial statements and disclose some information which may not be required if the company was a private company.
- Adherence to legal and regulatory requirements: A public company must adhere to the stock exchanges’ listing rules as well as applicable legal and regulatory requirements.
Going for an IPO is a major business decision and a complex process that requires careful consideration. By consulting an experienced IPO Advisor, they will be able to assess and facilitate the process for you to make the best decision for your company.
About ZACD Financial Services
ZACD Financial Services began in Hong Kong after obtaining licenses in 2016 to conduct Type 1 (dealing in securities), Type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the Hong Kong Securities and Futures Ordinance (SFO). Specialising in financial advisory, mergers and acquisitions and capital raising activities, ZACD offers clients valuable advice on structuring and execution, and assist them with expansion through access to capital markets. Email ZACD at email@example.com for more information.