Exceptional Magazine : 2012 Exceptional Magazine
Being rich or being king 42 Advantages • Enables businesses to obtain credibility in the marketplace (with future investors and lenders) and puts the business on a more structured commercial footing • Provides access to additional management expertise that enables the development of corporate culture and facilitates contacts • Gives owners the option of taking some cash off the table, and de-risking personal assets • Is an attractive option if some shareholders wish to participate in the future success of the company Disadvantages • Potential loss of control • Investors (especially private equity frms) may adopt a shorter term investment view, i.e. wanting to manage the business for short-term proftability • Loss of some of the beneft (both in proft and in value) if the business continues to perform Initial Public Offering (IPO) Listing a company can be an attractive exit strategy in the right market and often the risks can be mitigated through careful planning and execution. Advantages • Funds raised through the IPO provide immediate capital • Wider access to capital through both retail and institutional investors allows businesses to fnance growth opportunities • Provides a partial exit strategy for major shareholders --- they can realise some capital but maintain exposure to any value increase • Attract a quality management team and board to fll any current or future gaps More information For further information on this topic, contact Paul R Clark, Debt and Capital Advisory Leader at firstname.lastname@example.org or Tel: +61 3 9288 8926 or visit ey.com/au. Challenging markets may come and go, but it is the companies that are fully prepared that are best able to leverage funding opportunities. • Enhanced profle improves credibility with customers and suppliers • Wider equity ownership incentives for the team • Brings corporate governance and process controls higher up the agenda • A well-managed IPO can lead to a big increase in value and historically deliver the best exit price compared to a trade or private equity sale in the right market • Once listed, the share market provides an objective valuation for the company and equity liquidity Disadvantages • Executing an IPO is subject to market conditions • Exposure to equity market conditions such as the infuence of other businesses in the sector and economic conditions can potentially impact on share price beyond the company's control • Dilution of control for major shareholders • Additional management responsibilities due to listing requirements and investor relations, which can distract from day-to-day operations • Accountability of management --- obligation to make or exceed prospectus forecast • Increased disclosure requirements --- need to ensure there are no surprises to the market • Heightened visibility --- more company information is available to competitors • Increased directors' responsibilities • Investors are increasingly focused on governance • Obligation for major current shareholders to escrow for a period of time --- typically 24 months Choosing how to fund a business is a trade-off between keeping control and deciding how quickly it should grow. Once the decision to 'be rich or be king' is made, entrepreneurs should start planning early and build the right team, both within the business and in the advisors they appoint. Challenging markets may come and go, but it is the companies that are fully prepared that are best able to leverage funding opportunities.
2011 Exceptional Magazine
2013 Exceptional Magazine