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Gearing up for an IPO

Written by Charlotte Craigie, Director of Corporate Broking

15 March 2022

Initial public offerings (IPOs) are a significant equity market event. They can create considerable positive interest and public commentary for your business as well as attracting ongoing attention from investors and the media.  

2021 was an exceptional year for IPOs globally. London was the most active market in Europe, with 126 companies listing on the London Stock Exchange (60 on Main Market and 66 on AIM) – the highest number of listings since 2014. Indeed, London raised £16.9bn in 2021 – that’s more proceeds than both Amsterdam and Paris combined and greater than any year since 2007. 

At a sector level, Technology and Consumer Internet led the way accounting for 39% of London IPOs in 2021, while Financials, Consumer Discretionary and Healthcare represented 30%, 20% and 5% of IPOs respectively.       

In Dublin, there were two IPOs on Euronext Growth including digital therapeutics company HealthBeacon for which Goodbody acted as sole bookrunner (to find out more about the HealthBeacon IPO read our case study here).

In contrast to 2021, it has been a challenging start to the year amid macroeconomic and geopolitical uncertainty, significant equity market volatility and fund outflows.  As a result, several IPOs have been postponed due to market conditions. Nevertheless, the tide can turn in equity markets quite quickly and, with a positive change in sentiment, we could see IPO activity bounce back. 

Against this backdrop, we examine some of the benefits of an IPO and why it can be a compelling exit strategy.

IPO bound: the benefits

IPOs get a lot of headlines but make up a smaller proportion of business exits compared to M&A, strategic buyers and private equity. After all, they are only available to businesses of sufficient scale and sophistication to meet the qualifying criteria and exposure to the rules and discipline of public ownership.

Nevertheless, an IPO is a compelling platform to create wealth for shareholders and scale for stakeholders.

The prospect of a lucrative exit is naturally attractive for entrepreneurs. But the benefits of going public are not limited to the financial returns it can achieve.

A successful IPO can be a significant milestone in transforming a company’s ability to drive future growth and brings many structural benefits for a business: the preparation itself is a long-term investment in sound management and financial practices, while life as a public company imposes value-enhancing discipline on the whole organisation from top to bottom.

Why choose an IPO as an exit route

In practical terms, the reasons for exiting via IPO include:

  1. Liquidity for owners: a key driver of IPOs, as with any exit, is to create a so-called ‘liquidity event’ that pays cash to the owners and investors of a business. This has the effect of de-risking ownership and providing the liquid funds to diversify wealth.
  2. Ongoing source of capital: the main reason companies go public is access to capital from a wide pool of potential investors. That diversifies funding options for the business and provides successive exit points for investors or owners who wish to reduce exposure over time.
  3. Acquisition currency: new capital can be deployed in a variety of ways: for example, to fund growth and acquisitions or to break into new markets.
  4. Credibility with banks: public companies tend to improve their bank facilities after listing, meaning more financial firepower to drive growth.
  5. Visibility with customers and suppliers: these benefits can help a business grow, achieve better pricing, source new funding, or exploit opportunities.
  6. Incentives for staff: the ability to attract and reward employees with liquid shares is also a top consideration for companies in the war for talent and growth.

Structuring the offer

How the offer is structured will have a significant impact on the personal outcomes of the business owner and other investors, as well as the company itself.

Key decisions on shareholder structure must be made early in the process but will have long term consequences on shareholder value and future sell-down opportunities.

A minimum 25% free float (the number of shares held by external investors) is usually a standard starting point to balance liquidity and investor allocations.

Depending on the size of the company, this should allow for sufficient volumes of trading in the shares for investors who want to sell more into the market later.

Getting the right mix between primary issuance (shares bought by new investors) and secondary issuance (sell-down by existing shareholders) will help retain the value of continued shareholding while making cumulative share sales financially attractive.

Pitching the valuation at the right level is a similar balancing act. ‘Leave a little for the next guy’ is a good rule of thumb. Indeed, IPOs should not be seen as an end result, but instead as the very start of a new chapter for a growing business.

A successful IPO doesn’t just make money for the original owners and investors but creates an attractive investment opportunity for the next round of investors. After all, that’s where the long-term success for life as a public company starts.


Next steps?

Our team has extensive capital markets experience, expertise in advising companies seeking to raise capital as well as providing transaction execution support spanning mergers, acquisitions, and disposals, IPOs, and private equity fundraisings.

Find out more about our offerings and how to get in touch with us here.

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