Going Public

Definition: The process of registering a company's shares of stock with the Securities and Exchange Commission and offering the stock for sale to the public.

 There are a number of reasons to take your company public. Some of the most compelling advantages include access to capital, liquidity, compensation, prestige, publicity, mergers and acquisitions and exit strategy.
 
Access to capital

A public offering of stock can vary from as little as $500,000 to over $1 billion. By offering stock for sale to the public, a company can access a substantial source of corporate funding. If a company needs to raise capital, it can sell stock (equity) or it can issue bonds (debt securities). As a public company you can contact more potential investors, which will increase your access to capital. An initial equity offering can bring immediate proceeds to a company. These funds may be used for a variety of purposes, including growth and expansion, retiring existing debt, corporate marketing and development, acquisition capital and corporate diversity. And if investor interest in your company grows, you may obtain financing more easily in the future. Plus publicly traded companies can return to the public markets for additional capital via a bond or convertible bond issue or secondary equity offering. In general, public companies have a higher valuation than private enterprises.

Liquidity

In general, stock in a public company is much more liquid than stock in a private enterprise, because investors of the company may be able to buy or sell the stock more readily upon completion of the public offering. This liquidity can elevate the value of the corporation. The stock's liquidity is contingent on a variety of factors, however, including registration rights, lock-up restrictions and holding periods. A public company has greater opportunity to sell shares of stock to investors. Ownership of stock in a public company may help the company's principals to eliminate personal guarantees. Liquidity can also provide an investor or company owner an exit strategy, portfolio diversity and flexibility of asset allocation.

Compensation

Many companies use stock and stock option plans to attract and retain talented employees. It is increasingly common to recruit and compensate executives with a combination of salary and stock. Furthermore, stock in a public company can be issued as a performance-based reward or incentive. This reward could be deemed desirable if the stock has a public market. Stock can also be instrumental in attracting and keeping key personnel. A stock plan for employees demonstrates corporate good will, and allows employees to become partial owners in the company where they work. An allocation of ownership or division of equity can lead to increased productivity, morale and loyalty. This type of compensation is a way of connecting an employee's financial future to the company's success.

Prestige

A public offering of stock can help a company gain prestige by creating a perception of stability. A company's founders, co-founders and managers gain an enormous amount of personal prestige from being associated with a client that goes public. Prestige can be very helpful in recruiting key employees, as well as marketing products and services. When sharing ownership with the public, you spread the company's reputation and increase its business opportunities. By selling stock on an exchange, your company can gain additional exposure and become better known. This exposure may lead to improved recognition and business operations.

Publicity

Going public can generate prestige, publicity and visibility, all of which is effective when marketing your company. Public companies are more likely to receive the attention of major newspapers, magazines and periodicals than private enterprises. The proper use of press releases, interviews or news stories can increase investor awareness, shareholder value and demand for the stock. A strong ad campaign coupled with media initiatives can potentially increase sales and revenue. The publicity received from a going public encourages new business development and strategic alliances. Analyst reports and daily stock market tables contribute to the awareness of the consumer and financial community. A successful RTO or registration statement can get your company's story out to the world, and open an opportunity for investors. In addition, the publicity that it brings can attract the attention of potential partners or merger candidates. Tremendous exposure can be gained from a combination of radio, television, print and other publicity.
 

Mergers & Acquisitions

Once a company goes public and the market for its stock is established, the stock can be considered as valuable as cash when acquiring other businesses. A successful RTO or registration statement can have a dramatic effect on a company's profile, perceived competitiveness and stability. This perception can lead to expanded business relationships and added confidence by the consumer. That’s why a successful RTO or registration statement will increase a company's valuation, leading to a variety of opportunities for mergers and acquisitions. With the ability to raise additional capital by returning to the public markets for another offering, a public company is better able to finance a cash acquisition. A public company also has the advantage of using the market valuation when exchanging stock in an acquisition.

Exit strategy

One of the important benefits of an RTO or registration statement is the fact that the company's stock eventually becomes liquid, offering reward and financial freedom for the founders and employees. Officers, directors and controlling shareholders may have a ready market for their shares, which means that they can sell their interest at retirement, for diversification or for other reasons. Going public also creates a public market for the stock, which provides a potential exit strategy and liquidity to the investors. A public company can enhance the personal net worth of a company's shareholders. Even if a public company's shareholders do not realize immediate profits, publicly traded stock can be used as collateral to secure loans.