One of the most common reasons for companies going public, or -in other words- to get listed, is to raise primary capital to fund organic growth, repay debt or fund an acquisition.
Benefits and advantages of a listing
Besides access to the capital market, the benefits and advantages of a listing include:
- increased liquidity;
- brand recognition;
- professionalisation due to the high standard of corporate governance and financial reporting requirements;
- attracting talented personnel;
- creating a more diverse and international shareholder base (possibly in line with the activities of the company);
Disadvantages include the costs associated with a listing. Also a listing requires a relatively high level of transparency and frequent reporting which may be considered less attractive for some companies.
Requirements of a listing
A listing on the stock exchange requires a certain size of the company to justify the expense and to ensure sufficient investor interest. Companies use different sources of capital during the life cycle. Start-up firms are usually financed by the owner or other private capital. As the company starts to gain traction and grow revenues, in the early years financing increasingly will come from a combination of private equity and banks. It is not unusual for a company to be brought to the market by a private equity investor who is looking for an exit. In general, listed companies tend to be companies with more mature products, services and end markets.
Companies can also be taken private again (i.e. off the stock exchange). Examples of situations which may lead to a delisting include a take-over by another company as well as the case in which large shareholders or private equity firms make an offer for a company, because they see an opportunity to create more value, and hence decide to take that company private again.