Going Public

What are a few of the rewards by becoming a public company?

Plainly put, the most evident advantage of becoming a public company is the accession to money through either an initial public offering, or a series from additional investment offerings in which your company would sell some of its common shares to likely investors. This is not the only advantage of becoming a public company, there are many other distinct benefits that can help you grow, sell, or simply provide more security in your business.

• Mergers and Acquisition: Because a public company actually has a “real” and assigned currency value to its stock, companies that are publicly traded have the ability to purchase competitors, merge with other companies, and provide “liquid” capital for these business deals. Additionally, in the merger arena, if your business is public, its stock value will normally be much higher than it was previously, and will enable many businesses to increase their leverage within merger discussions.
• Higher Valuations: Public Companies are typically valued more than private companies. For example, private companies (when being sold) will have a normal valuation of 1 2 times their annual revenue. Public companies will have valuations that can be from 2 10 times their annual revenue (or more), depending on the industry and the company.
• Benchmark Trading Price: The trading price of a public company’s securities serves as a benchmark for the offer price of a subsequent public or private securities offering.
• Capital Formation: Raising capital later is usually easier because of the added liquidity for the investors.
• Incentives: By enabling your current and future employees to have a fixed-asset value on stock, options can become a powerful tool in employee recruitment and retention.
• Reduced Risk: Public companies can have greater access to additional capital (through secondary funding rounds), will provide a “golden parachute” for founders and other stockholders within the company, and will often enable the company, at a time of sale, or merger, to be able to gain significantly more revenue if the business is sold or merged.
• Reduced Business Requirements: While an underwritten initial public offering requires a relatively long and table earnings history, the lack of an earnings history does not keep a privately held company from becoming a public company.
• Reduced Dilution: There is less dilution of ownership control compared to a traditional Initial public offering.
• Liquidity: More liquidity for founders, minority shareholders, and investors.
• Prestige: Added prestige and visibility with customers, suppliers, employees and the financial community.