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The reasons some companies choose a stock market listing

There are several potential benefits for a company going public, which include:

  1. Access to Capital: One of the primary benefits of going public is that a company can raise a large amount of capital by selling shares of its stock to the public. This capital can be used for various purposes, such as funding research and development, expanding operations, paying off debt, or making acquisitions.
  2. Increased Visibility and Prestige: Going public can also increase a company’s visibility and prestige, as it can generate media attention and establish the company as a major player in its industry. It can also help attract top talent and partnerships with other companies.
  3. Liquidity: Once a company goes public, its shares can be bought and sold on a public stock exchange, providing investors with liquidity and allowing them to easily buy or sell shares at any time.
  4. Valuation: Going public can also help establish a fair market value for a company’s shares, which can be useful for future acquisitions, mergers, or divestitures.
  5. Stock-Based Incentives: Publicly traded companies can offer stock-based incentives to employees, such as stock options or restricted stock units, which can help attract and retain top talent.
  6. Shareholder Diversification: Going public can also provide existing shareholders with the opportunity to sell their shares and diversify their portfolios, which can be particularly beneficial for early investors or founders looking to liquidate their holdings.

However, it’s important to note that going public also comes with significant costs and regulatory requirements, such as increased scrutiny and reporting obligations, which may not be suitable for all companies. It’s important for companies to carefully weigh the potential benefits and drawbacks before deciding to go public.

What percentage of companies go public?

The percentage of companies that go public can vary widely depending on a variety of factors, including market conditions, industry trends, and economic factors. However, over the past decade, the number of companies going public has fluctuated between around 100 to 200 per year in the United States.

According to data from Renaissance Capital, a provider of institutional research and IPO ETFs, in 2021, there were 546 IPOs (initial public offerings) globally that raised a total of $203.8 billion. This was a significant increase from 2020, which saw 407 IPOs that raised $143.9 billion, despite the impact of the COVID-19 pandemic.

While the number of IPOs varies year to year, it is worth noting that the vast majority of companies remain private and do not go public. Many companies may choose to remain private to maintain control, avoid the regulatory requirements and expenses associated with going public, or simply because they do not need to raise additional capital.

Are there any drawbacks to being a public company?

Yes, there are several drawbacks to being a public company. These include:

  1. Increased Regulatory Requirements: Public companies are subject to more stringent reporting requirements and regulations than private companies. They must file periodic reports with the SEC, disclose financial information to the public, and comply with various laws and regulations. This can be time-consuming and expensive.
  2. Scrutiny and Expectations: Public companies are subject to greater scrutiny from shareholders, analysts, and the media. This can result in increased pressure to meet performance expectations, maintain stock prices, and provide regular updates on the company’s progress. This can be challenging for management teams who are focused on long-term growth.
  3. Short-Term Focus: Public companies may face pressure to prioritize short-term goals over long-term strategies. Shareholders may be more focused on quarterly results and short-term gains, which can create tension between management teams and shareholders.
  4. Loss of Control: When a company goes public, the founders and management team may lose some control over the company. Shareholders may push for changes in management or strategy, or the company may become vulnerable to hostile takeovers.
  5. Costs: Going public can be expensive, with costs associated with legal, accounting, and other professional fees. Public companies may also face higher costs of compliance and investor relations.
  6. Disclosure of Sensitive Information: Public companies must disclose sensitive information about their operations, financials, and management team, which can make them vulnerable to competitors and litigation.

These drawbacks can make going public a challenging decision for some companies, and it is important to weigh the potential benefits and drawbacks before deciding whether to go public.

What types of industries are best for companies to be public?

There is no one-size-fits-all answer to this question, as the types of industries that are best suited for public companies can vary widely depending on a variety of factors, such as the size and growth prospects of the industry, the regulatory environment, and investor demand.

That being said, some industries that have traditionally been popular for public companies include:

  1. Technology: Technology companies are often seen as having high growth potential and attractive valuations, which can make them attractive to investors. Many technology companies, such as Apple, Microsoft, and Amazon, have become some of the most valuable companies in the world through their public offerings.
  2. Consumer Goods and Services: Consumer goods and services companies, such as retail, food and beverage, and hospitality, can be attractive to investors due to their stability and predictable cash flows. Examples of publicly traded consumer goods companies include Procter & Gamble, Coca-Cola, and McDonald’s.
  3. Healthcare: Healthcare companies, including pharmaceuticals, biotech, and medical devices, can also be attractive to investors due to their potential for high growth and significant innovation. Companies like Pfizer, Johnson & Johnson, and Moderna have been successful in the public market.
  4. Financial Services: Financial services companies, such as banks, insurance, and asset management, can also be well-suited for public offerings due to their ability to generate steady cash flows and provide consistent returns to investors. Examples of publicly traded financial services companies include JPMorgan Chase, Goldman Sachs, and Berkshire Hathaway.

It’s worth noting that these are just a few examples, and there are many other industries that can be well-suited for public companies, depending on their individual circumstances. Ultimately, the decision to go public depends on the specific needs and goals of the company, as well as market conditions and investor demand at the time of the offering.

Is it easier to raise money as a public company, rather than a private one?

In general, it is easier for public companies to raise money than private ones. This is because public companies have access to a much larger pool of potential investors, including institutional investors, mutual funds, and retail investors. Additionally, once a company is public, it can issue additional shares of stock to raise capital, which can be a faster and more efficient way to raise money than private placements.

Another advantage of being a public company is that it can often borrow money at more favorable terms than private companies. Public companies have a higher level of visibility and credibility in the marketplace, which can make it easier to negotiate favorable borrowing terms.

That being said, there are also disadvantages to being a public company, as mentioned in a previous answer. Public companies are subject to more stringent reporting requirements and regulations, and they may face pressure to prioritize short-term goals over long-term strategies. Additionally, the process of going public can be expensive, and the ongoing costs of compliance and investor relations can be significant.

Ultimately, the decision to go public should be based on the specific needs and goals of the company, and the potential benefits and drawbacks should be carefully weighed before making a decision.

 

What is the actual process for taking a company public?

Taking a company public is a complex process that involves several steps. The general process for taking a company public in the United States includes the following:

  1. Hire Underwriters: The company typically hires one or more investment banks to serve as underwriters for the IPO. The underwriters help the company to prepare for the IPO, conduct due diligence, and facilitate the sale of the shares to investors.
  2. Prepare a Registration Statement: The company prepares a registration statement, which includes detailed information about the company’s business, financials, management team, and risk factors. This statement is filed with the Securities and Exchange Commission (SEC) for review and approval.
  3. SEC Review: The SEC reviews the registration statement and may request additional information or changes. The review process can take several weeks or months.
  4. Roadshow: The company conducts a roadshow, in which members of the management team meet with potential investors to discuss the company and its IPO.
  5. Pricing: The underwriters and company set the price for the shares based on investor demand and market conditions.
  6. Trading: The shares are listed on a stock exchange, and trading begins.

It’s important to note that the IPO process can be costly and time-consuming, and there are many regulatory requirements and legal considerations to take into account. The process can take several months or even years to complete, and companies must be prepared to disclose extensive information about their operations and financials.

Do companies ever go private after being public?

Yes, companies do sometimes go private after being public. This can happen for a variety of reasons, including a desire to reduce regulatory requirements, to gain more control over the company, or to take advantage of private capital without having to disclose financial information to the public.

Some examples of companies that have gone private after being public include:

  1. Dell Technologies: In 2013, computer technology company Dell went private in a $24.4 billion deal led by its founder, Michael Dell. The move allowed the company to focus on long-term growth strategies and avoid the scrutiny of public markets.
  2. Heinz: In 2013, food processing company H.J. Heinz was acquired by a consortium led by Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G Capital for $28 billion, taking the company private.
  3. Toys “R” Us: In 2005, toy retailer Toys “R” Us was taken private by a consortium of private equity firms in a $6.6 billion deal. The company later went bankrupt in 2018 and closed all its stores.
  4. Petco: In 2006, pet supply retailer Petco was taken private in a $1.8 billion deal led by private equity firm TPG Capital. The company later went public again in 2021 through a merger with blank-check company CVC Growth Acquisition Corp.
  5. BMC Software: In 2013, software company BMC Software was acquired by a consortium led by Bain Capital and Golden Gate Capital in a $6.9 billion deal, taking the company private.

These are just a few examples of companies that have gone private after being public. It’s worth noting that going private can be a complex and expensive process, and the decision should be carefully considered by the company’s management and board of directors.

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