Advantages to Going Public
Enhanced
Value
Traditionally, public companies carry a higher monetary value per share,
relative to assets, and the capacity to generate earnings and cash flow,
when compared with private companies. Public shares generally command
a higher price due to:
- Greater marketability/liquidity
- Greater perception of excellence/maturity
- Greater availability of timely information
Foremost, this higher valuation may allow
the company to better leverage its financial strength through credit facilities,
secondary offerings and other financial activities.
Improved Financial Condition and Lower Cost of Capital
Once a privately held company has exhausted its bank lines, has raised
additional equity and debt capital by tapping venture capital sources,
friends and associates, its growth can become severely limited. Knowledgeable
and sophisticated investors in a private company will discount the value
of its equity securities as a matter of course. The reason is the lack
of liquidity or the inability to readily sell-off these types of securities.
If the company becomes public through the sale of new shares through an
Initial Public Offering (IPO), the financial condition of the company
is immediately improved and may enable the company to pursue additional
leverage if needed, at more attractive interest rates and greater levels
of funding.
Stock For Acquisition
The public market places an immediate, independent valuation on your company,
thus allowing the flexibility to better utilize company stock as currency
in the acquisition of private and public companies.
The Visibility Factor
As a public entity, visibility of company developments, services, and
products are enhanced through public press releases, public ownership
and other value added media. In summary, greater visibility can correlate
to greater brand recognition of a company’s products and services. This
in turn can positively impact a company's sales and profitability because
customers and suppliers often prefer to do business with better known
companies.
Competitive position
Many companies plan to use a portion of
the capital raised through a public offering to fund greater market penetration.
Some businesses, like technology based companies, use the investment proceeds
to take advantage of a narrow window of opportunity to get to market before
their competition. Customers also like to deal with well-financed suppliers.
A strong balance sheet can make a very effective marketing tool.
Employee Incentives
The enhanced marketability of publicly-traded shares enables companies
to attract and retain key personnel through the granting of performance-based
stock options, stock appreciation rights, or stock bonuses. These incentives
elevate the esprit de corps of the company by instilling a healthy sense
of ownership and participation in future prosperity, while keeping working
capital intact.
Personal Wealth
A public offering can enhance your personal
net worth. Subject to applicable Federal and state securities laws, one
can begin to sell his/her personal holdings. Naturally, you and your co-founders
will gain some notoriety from being associated with a company that goes
public. This prestige can be helpful when it comes to recruiting key employees
and in marketing your products or services.
In addition, banks often require the principles of private companies to
personally guarantee bank loans. When your company sells stock it increases
net worth and improves the debt-to-equity ratio. The stock itself can
be used a collateral, eliminating the need to underwrite company borrowing
with personal guarantees.
