Planning an IPO?
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August 2011 |
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AURA GIURCANEANU - Partner, Head of Audit and Assurance
KPMG ROMÂNIA S.R.L. |
Adresa
DN 1 Bucureşti Ploieşti, Nr. 69-71
013685 Bucureşti, Sector 1
Telefon
+40-21-201.22.22
Fax
+40-21-201.22.11
Website
www.kpmg.md
www.kpmg.ro
Making an Initial Public Offering (IPO), meaning to launch a company on a stock market, is a very important step in the development of any business.
Getting to the IPO destination – and knowing what lies beyond – can be complicated and time consuming. There are no direct pathways. The only path is the long and winding type. And there will almost certainly be risks and hazards along the way; signposts and milestones to look for; and a host of suppliers and gurus that can either help you or hinder you.
If a company’s shares can be bought and sold on a stock market, this gives it much more ready access to financing, helping it to grow. However, there can also be challenges in making this step. Since the start of the recession, fewer Romanian companies have been interested in IPOs, often preferring to consolidate their existing business. Nevertheless, as businesses start to think beyond the present economic downturn, this could be a good time for them also to think about “going public” i.e. launching an IPO. IPOs have real potential for development here, bearing in mind that currently Romania has the lowest level of public companies compared to other countries in Central and Eastern Europe.
This guide will lay out some of the key considerations, challenges and opportunities which must be considered by any executive preparing for a journey to an IPO. We’ll share our experience and pull back the curtains on some of the common pitfalls and misconceptions about planning and executing an IPO. We’ll share industry best practices and tips that we have learned along the way.
We encourage you to contact KPMG to find out how professionals can help your company cut through the complexities of an IPO and lay out a safe travel plan to help you reach your ultimate destination.
Is an IPO right for my business?
Firstly, a business needs to decide whether or not an IPO would be the right thing for it to develop. Not all private companies are suitable. There are no set rules for those who do or do not qualify for an IPO. However, generally speaking, issuers (these are the companies which decided to go public and issue shares) must possess certain prerequisites. For example, long serving and competent management is a positive consideration for investors. Also the company must be financially sound and show earnings growth and future potential. It does help if the company is a market leader or has a unique product/service to offer. In all, issuers have to have a convincing story to tell to the investor community. Ask yourself why would anyone want to invest in my company - or me?
What are the benefits of an IPO?
Obviously, the main strategy for going public is to raise new money and to use that cash for expanding your business. For example, you may be considering making an acquisition or purchasing high technology production equipment. If you are publicly quoted, investors will be able to freely buy and sell shares. This establishes liquidity in your shares and therefore allows an exit from the investment if a shareholder so wants.
Furthermore, it increases your ability to obtain more and possibly cheaper finance either through issuing additional shares or bonds (loans). It permits you to become more visible in the market and improve the profile of your business. Thus you create a greater awareness in the business and investor community. It allows you to establish a market value for your company - which brings many benefits including attracting and retaining key employees, and last but not least it will probably enhance your personal wealth.
While these are some of the most common reasons to set out on an IPO journey, there may be a number of other side benefits which can be attained through the process. For example, companies operating in politically unstable jurisdictions – or ones with opaque regulatory protection – may find that listing on a foreign exchange provides a level of protection for their existing investors. In other cases, an IPO may constitute a step towards lucrative contracts which are reserved for public companies.
Are there any draw backs?
Not for the forward looking entrepreneur who embraces the modern concepts of good corporate governance. You may lose control over the company and you will have to deal with outside shareholders who at times may seem demanding. You will have to continuously prove to those investors/shareholders that you can maintain the value of their investment and grow shareholder value. You will have to resist taking a short-term view geared to satisfying shareholders’ immediate needs for good results.
The fact that your company is public means that its business becomes a matter of public record and is accessible to your competitors. Disclosure requirements will be more arduous and you will have to comply with stricter controls imposed by the CNVM in Romania. Then there is the transaction cost attached to an IPO. Consider for example the essential work to be done by your lawyers and auditors before you make your share sale. A small percentage in the context of your Big Deal.
Once the company is listed, you will have to continue with your professional advisers to ensure that you comply with the securities regulatory regime, etc. As with any other form of financing, there are no guarantees that your IPO will be successful.
