Going public with IPOs

While public companies appear to be more glamorous and well-known, they may entail higher risk as well as less stability than private companies. Let us examine the pros and cons of getting an IPO (Initial Public Offering) :

-------------------------------------------------------------------------------------------------
Pros:

• Increased capital
• Improved financial position
• Reduced personal funding and guarantees
• Public company status
• Marketability of shares
• Business succession
• Better employee morale and productivity

Cons:

• Increased pressure to improve growth and maintain profit
• Disclosure of information and additional compliance requirements
• Dilution of control
• Listing cost

-------------------------------------------------------------------------------------------------

As an owner or shareholder of a private company, before committing to obtaining an IPO, you need to weigh you options, the pros and cons of an IPO as well as consider in accordance with the goals and prospects of the company. Usually a successful IPO listing involves,

• A track record of revenue growth
• Capable leadership
• An experienced and credible management team
• Operations in a strong industry with potential for high performance.

However, it is difficult to accomplish the above-listed prerequisites for success. The track record of revenue growth may be misleading when the market is on an upward trend. Since the quality of the leaders and team are measured by their profit-generating capabilities, they too tend to mislead in a booming cycle. With that in mind, we can see the importance of evaluating the strength of an industry and its future potential to judge the true value of the public stock.

One thing many people fail to understand is that a truly successful and stable business does not need to go public to attract new capital (unless it is of a substantial amount). Doing so will not only undermine their control of the company, increases their accountability to shareholders but more important it will expose the secrets of their success to competitors. If there is urgency to go public, it usually is for the purpose of a quick profit (early exit), serious need for capital (burnt out accounts needing new funds injection) or financial leverage (higher risk but if successful generates high returns).

So before you believe everything you read or hear in the news, learn about the foundations of these mega-corporations to have a better grasp of the true extent of the risk you are undertaking.