Why to Go Public ?
Public offerings are usually used to raise money and get corporate finance. An IPO allows the company to get a large block of capital at once. The underwriter and the selling group go on an organized campaign to get money for you.
You will have exposure to investors who may want to finance you later on. The ideal way for a small company to get money fast is to get out the shareholder list and dial. These people are on your team, they want you to succeed and if you are producing at all, and staying in touch with them, they will help you. For the larger company, the same is true on a larger scale with more formal procedures.
Sooner or later you will see a great opportunity to use money in your business and fast access to new funds will be key to grabbing this opportunity. Having ready access to money is the means to expansion.
You can not only use your stock to get money, you can use it instead of money. You can make acquisitions of companies and assets even with stock that has not yet been registered for sale. Large corporate empires have been created using the corporate currency of securities in a creative way.
As with any other form of money, the key is having public confidence in the currency. IPOs have been used to value companies for estate or estate tax purposes or to pay estate tax bills.
Companies that want to be bought out can go public to get a higher sales price and more visibility to the possible buyers.
Being a public company creates a certain credibility about the company. It can add a certain prestige. It certainly makes the company more well known.
Some managers actually take their companies public to protect them. They believe that as a public company they are less likely to be bullied or harmed by governmental interests or overly-aggressive competitors because when a wrong-doer harms the company, it also harms the interests of thousands of shareholders, and these shareholders can make their weight felt against the attack.
It is easy to understand the benefits of having a high and constantly growing stock price. However, you may realize that not all public stocks go up indefinitely. Not all trees grow to the sky and even the best of public companies find their stocks going down for reasons that are unrelated to the company. For example, the when Saddam Hussein invaded Kuwait, the Kuwait Investment authorities sold large positions of many fine stocks in its portfolio in order to finance the counter-attack, causing these stocks to go down to new lows.
This gave management a chance to buy up these stocks at bargain basement prices.
Some managements turn this into a permanent policy and increase the value of their shares by making strategic buy-backs of stock when the stock is undervalue. Others simply just buy when the stock is too cheap and sell when it is too high, reaping large increases in wealth.
Other owners go public to increase their wealth. Having 100% of a private company making $1 million a year is a fine thing, but having 80% of the same company that sells at a price-earnings ratio of 12, gives you a paper wealth of almost $10 million and you can access that wealth by borrowing against it without selling and having to pay the capital gains tax. You will also gain the $2 million cash you picked up by selling 20% of the stock to the public and still control the $1 million per year profits.
In certain cases, where you can demonstrate the case for growth and eventual profitability of the company, you can even take a money-losing company public if investors see the value.
Companies wanting venture capital may also find that doing a small offering allows them to access the same funds or more without signing over control to a venture capital firm.
Thus, we believe that the more you look at all the options that are out there for public companies, the more you will find yourself eager and excited to access the market to help you achieve all your goals.
We have been involved in one way or another in taking companies public for over 40 years. We believe that our experiences as a venture company CEO, IPO market maker, underwriter, and attorney provide a unique overview of all of the aspects of the process and you may be surprised to find just how important that integrated knowledge is in making your offering and your company a success. We believe that when you discover that we are used to finding solutions for the types of issued you may face, you will find yourself putting us in that place in your mind where you put trusted advisors that you must have on your team. For this reason, we invite you to get in touch with us for a friendly, no-cost chat about what your options are. Email John Lux at John.Lux@Securities-Law.info