Companies have several options for raising capital, but many prefer issuing new shares to the public through an Initial Public Offering (IPO). Once a private company decides to go public, it must undertake some housekeeping and work with a Transaction Advisor to create an Information Memorandum.
The Information Memorandum is a detailed financial report that helps investors make informed decisions. The Transaction Advisor then sets a price for the new shares based on a number of factors such as the company’s financial performance as well as investor appetite. Once the relevant regulatory approvals are obtained, a date is set for the IPO.
Eventually, the private company’s shares become publicly traded and the entity will be publicly owned.
Companies that go public get enormous opportunities to grow their organizations. An example is access to capital, which may have been difficult to raise from other sources. In addition, the capital raised provides more funds for the expansion of the firm and the development of new products. IPOs also give original investors the opportunity to exit, if they so desire.
Moreover, public companies attract top-tier talent while the IPO process generates publicity, which raises a firm’s profile. This is great for the original investors, who benefit from the additional value created during the process. Listed companies also have an easier time of acquiring other companies.
Even with all these benefits, firms still have to deal with the downsides associated with the transition of going public. To start with, the process can be very expensive. In addition, the business will need to conduct regular audits and reporting, which must be available to the general public. Lastly, low investor appetite could end in poor performance of the shares, affecting the perceived market value of the company.
IPOs can be complex and should be undertaken by experienced advisors. Any private company seeking to raise capital through an IPO has to evaluate the pros and cons involved.
Standard Investment Bank Ltd (SIB) has been at the forefront of investment banking advisory services in the capital markets. We have been involved in many transactions assisting companies to list on the Nairobi Securities Exchanges through IPOs. Private companies looking to raise capital through an IPO can email us on firstname.lastname@example.org.
Jacktone Odoyo is a Corporate Finance Associate at Standard Investment Bank