A company life map - the rise and fall of a hot stock
Introduction|
Course|
610
2. The decision to go public
Alan considers the advantages and disadvantages of public status.
ADVANTAGES
- Access to capital
CB needs money to open new stores and get its catalogue business back on track. An IPO will put shares in the hands of the public for the first time, raise money, and possibly enable further capital-raisings at a later stage. - A quote for Country Bumpkin's shares
Some of CB's private shareholders want to turn their shares into cash. A market quote will provide liquidity for those who want to sell. - Employee motivation
With a public listing Alan could set up a share option scheme for staff which will motivate them and make it easier to recruit new talent. - Acquisitions using 'paper'
The garden centre industry is a fragmented one. A listing will enable Alan to make acquisitions with paper (i.e. shares) rather than cash. - Higher public profile
Being listed will bring Country Bumpkin publicity, widening awareness of the company and its products.
DISADVANTAGES
- Vulnerable to the market
If CB's shares are quoted, its valuation (shares in issue multiplied by market price) is affected by market sentiment, rumour, the economy, and other factors outside its control. If those factors depress its price, it may attract a predator. - Need to satisfy shareholders
Private companies can run themselves how they like. Public companies have to meet the City's expectations in terms of earnings and dividends, which might require it to do things that don't necessarily suit its long term interests. - Disclosure requirements and ongoing reporting
Alan would have to devote time and money making sure that CB observes Stock Exchange regulations. Those could be irritating distractions when he's trying to run the business. - Costs and fees
The costs of floating, even on AIM, are measured in hundreds of thousands of pounds. - Directors' responsibilities and restrictions
The directors of a public company lose their privacy, and there are restrictions on how and when they can deal in the shares of their own company.
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