9 Things to Expect After Your Company Goes Public

Once your business goes public, it is no longer just about you, your founding team, and the limited number of investors you had before. Now you may have hundreds or even thousands of investors in your company – these are hundreds of people looking at what you are doing, looking to see if you were a good investment or not.

The stakes are now higher so your company would need to operate differently.

In a previous article , I mentioned the considerations that must be made before taking your company public. Here, I outline nine things your company can expect after it goes public:

1. The Responsibility of Being Successful and Sustainable
2. Increased Visibility
3. Disclosure Requirements
4. Increased Recurring Costs
5. Short-Termism in Shareholders
6. Greater Access to Capital
7. Enhanced Liquidity
8. Improved Valuation
9. Future Capital Raises

The Responsibility of Being Successful and Sustainable

The responsibility of going public is the responsibility to be successful and sustainable.

Meet Brian and Ingrid Jahra, the husband and wife founding team of CinemaONE – a movie theatre exhibitor operating in Trinidad and Tobago. Months after listing on the Trinidad and Tobago Junior Stock Exchange, Brian and Ingrid discuss the importance of focusing on succession planning and business sustainability for their hundreds of new investors:

The key points to note here are:

• Business processes are key: Many SMEs lack well-defined policies and procedures which help the business to enshrine what the founders thought were the elements that make the company successful and create the DNA of the company.
• Management team: Train the management team to become faces of the brand as well to allow the founders to lead expansion into other areas. Important to integrate your management team into the business arena so that people reach out to them as well as the founders.
• Employees: Run your business with a great amount of transparency, approachability, and accessibility for your staff so that they feel like they are part of the vision and growth of the business and have a voice.?
• Wider Shareholder Group/Community: IPO helps foster the need for sustainability through your accountability to your wider shareholder group and independent directors for guidance.

Increased Visibility

Public companies tend to have increased visibility, brand image, or public profile. This could attract a more diverse investor base, strategic partners, and/or customers.

Disclosure Requirements

Public companies are required to make various disclosures related to their business operations, competition, executive compensation, and customers as part of their public offering documents and for continuous disclosure purposes.

Further, shareholders and other stakeholders will scrutinize these disclosures, placing pressure on you and your management team. This can result in lengthier and less flexible decision-making processes as management attempts to undertake actions based on the expectations of these stakeholders.

Increased Recurring Costs

The recurring costs of being a public company include increased internal staffing costs and professional fees (e.g., higher regulatory, compliance, accounting, audit, or tax costs). Some of these costs relate to increased demands on your management team’s time to prepare ongoing required annual and quarterly filings.

Short-Termism in Shareholders

Most public company shareholders only invest for the short term and are interested in quick rises in the share price. This means that their focus would usually be on quarterly results and media commentary versus the long-range planning, and prospects for your company.

Typically, over 60% of a company’s value is related to cash flows expected three or more years in the future rather than its recent performance. Short-termism in shareholders results in the failure to consider your company’s:

• Potential future return from research & development (R&D),
• Long-term value of intellectual property assets, and
• Returns to be derived from investments intangible, capital assets.

Greater Access to Capital

A public company may have access to capital and future financing opportunities that are not available to private companies, for example, access to secondary equity financing through the ability to issue further shares.

A public company may also have access to financing on more favourable terms as compared to private investors.

Issuing shares also has benefits for a company’s balance sheet and debt-to-equity ratio, which may allow it to renegotiate existing debt for more favourable terms or obtain easier access to additional debt financing.

Enhanced Liquidity

Going public will provide liquidity to your company’s founding team and shareholders, which enhances their wealth through the creation of a public market for their holdings. As your company continues to grow and scale, its publicly traded shares can potentially be used as a currency for acquisitions and future investments, which can further the company’s growth.

Improved Valuation

Public companies typically trade at higher valuation multiples than private companies as the greater disclosure of information reduces uncertainty around performance and increases value. Additionally, the enhanced marketability of the company’s shares makes them more attractive.

Future Capital Raises

As your company continues to be in expansion mode, you will need to revisit the investor markets from time to time to raise capital to fund your growth. In so doing, it is important to remember these two tips every time you are about to embark on a capital raise:

• Really understand your business - ensure that you understand accounting/finance as it is especially difficult to raise capital if you do not speak the language of business.?
• Understand your investor market - for example, the general T&T market currently has more appetite for regular cash inflows through dividend payments than for patient, long-term capital appreciation. This also ties into our earlier discussion on shareholder short-termism.

The SME sector has been poised for growth for several years and is a strategic sector for numerous countries. The role that the capital markets play to seed economic growth is not only pivotal but vital.

While there are many benefits to listing on a stock exchange including greater access to capital to fund growth and innovation, market awareness, liquidity, and tax incentives, we must be soberly aware of the disclosure requirements, recurring costs, and the ups and downs your share price will experience as the public reacts to news and events.

This is the final in a series of 3 articles about listing your company on the stock exchange. If you missed any of the previous articles you can find them using the links below:

1. Are You Ready to Take Your Company Public?
2. How to Launch Your IPO Without Any Problems

I hope this series has been helpful for you in thinking about different avenues to fund the growth of your business.

Are you building a valued business? Take the Business Value Scorecard to determine if your business is ready to scale, exit, or raise capital at a high valuation.