When is an IPO a good fit for a company, and when isn’t it?
Taking your business into the public realm through an Initial Public Offering (IPO) is a big step as it introduces new focuses and new standards prompted by your investors.
It’s a process that can take a long time, with a lot of internal preparation needed even before listing, not to mention the ongoing post-IPO work.
However, Dynamic Business saw first-hand how IPOs can benefit companies, when we spoke with Andrew Ward, founder and managing director of listed fintech company SelfWealth.
Ward said going public has provided SelfWealth with a platform to communicate with a broader audience of investors as well as greater credibility as a financial services provider and the capital to grow at a faster pace than previously possible. Critically, SelfWealth has continued to enjoy strong growth since the IPO, with Q3 FY18 revenue up 90% on the previous quarter and 759% on Q3 FY17, plus an increase in users by 50% from Q2 FY18.
Ward said he had two main objectives for listing SelfWealth on the Australian Securities Exchange (ASX) in November last year. Firstly, he wanted to “raise enough funds to approach profitability”. Secondly, he sought to “generate significant awareness in and credibility for SelfWealth”.
When discussing the new focuses and standards of the business, Ward said “One of the big areas of education for the business, including our employees, has been around disclosure, market-sensitive information and the windows when stock can be bought or sold. Our CFO and I have also had to switch focus a little more towards Investor Relations (IR), as we now have over 800 shareholders.”
If you’re thinking about listing, read through the discussion here as to whether it’s right for you, and read up on Samantha Dybac’s article for Dynamic Business which discusses the PR strategies you’ll need to have in place to make it a success.
Kyahn Williamson, Group Head – Investor & Corporate Communication at WE Buchan
The right time to IPO is different for each business. Although the need for an IPO might be apparent, including to raise capital or validation for early stage companies, it doesn’t always mean the company is ready. Before listing, a business must ensure it has the systems in place to ensure it can comply with its reporting requirements to the ASX – there’s no such thing as an extension! – and strong corporate governance.
It’s important that the company can articulate its reason for listing, the reason why its product or service fulfils a market need and how it intends to deliver shareholder value in the short and longer term. That can’t be sugar coated; every business has its risks and a team that is realistic about what risks its business faces and how it mitigates against them can give extra confidence.
It’s also important to remember that the market can be unforgiving if a company misses its promised milestones or guidance. Therefore, the best time to list is when a company is confident that its path to an inflection point that will generate returns for its investors is clear and unencumbered. This significant milestone might be reaching a crucial stage in product development or approvals, reaching a certain threshold of market share or showing a clear pathway to profitability.
Glyn Yates, national head of corporate finance, RSM Australia
While an IPO can raise capital for growth, the listing process can be a demanding and costly process, with further complexities to navigate upon a successful listing.
An IPO is a good fit for a company when the company has:
1. Industry expertise and a robust business model
Having maturity and industry expertise is key to raising a company’s profile with investors. Having a well defined and articulated business plan is also key to a successful IPO. If a business does not have these fundamentals in place, then it is likely doing an IPO too early and would be better served generating funds from alternative sources (e.g. early stage investors and venture capitalists).
2. A strong external advisory and internal team
An IPO process requires considerable input and collaboration from professional advisers. However, this attracts additional costs and diversion of business resources and funds from core business activities to IPO activities. Listing a company also requires a time investment with general estimates of six months to two years, depending on a company’s size and complexity.
3. Strong governance practices and robust reporting
A strict regulatory framework and complex, ongoing reporting requirements for listed companies can result in significant administrative burdens if a company is unprepared prior to listing.
Vlado Bosanac, Founder and CEO of health tech MyFiziq (ASX: MYQ)
An IPO is usually only a good fit for a company that can prove it has strong growth potential and can bear the increased in scrutiny the process brings. An IPO can be used as an effective means of raising new capital to help achieve and accelerate the growth strategy of a company. An IPO can also be used to create a liquidity event for a company’s existing shareholders. When looking to grow the company through mergers or acquisitions, being listed also provides the company with a new way in which to finance potential acquisitions. Listed shares are also a great way to reward and attract key personnel for the growth of the company.
An IPO will not be a good fit for a company if it is still developing its long term business strategy and does not have a clear and well explained use for the capital that will be raised. Furthermore, a company should not IPO if it is not yet prepared for the additional regulatory and shareholder scrutiny that comes with being a publicly listed company.
