ASK THE EXPERT: Corporate partner and expert in flotations at Ward Hadaway, Richard Butts.
Floating on a stock market is one option for companies looking to raise investment, as Richard Butts explains.
Entrepreneurs who are seeking funding to achieve long-term stability and growth for their business should consider whether a flotation will achieve their goals.
Recent research* reveals more than three quarters of UK entrepreneurs seeking funding for their businesses over the next 12 months are looking to raise up to £10m each. Making the decision to float your business requires careful thought and obtaining experienced advice early on is critical. If your company has a track record of profitability and the prospect of future growth, then it may be attractive to institutional investors and so a float may be suitable.
Reasons to float
There are a number of reasons why you might consider floating. Once your company’s shares are traded on a stock market it can issue its shares to fund growth and development. A float will create a market for your company’s shares. This allows shareholders to realise value from their investment and your company to complete acquisitions by offering shares.
It may also enable you to fund research and development and permit employees to participate through owning shares with a visible value and a ready market. A float will also raise the profile of your company, which can help with customer relations and suppliers.
During a flotation, an entrepreneur is usually able to sell shares in order to realise some value for their hard work, although you should not assume that a float will be your opportunity to fully exit, as investors will be looking for evidence of your continued commitment to the business.
It’s also worth remembering that a flotation is not for every company. Once a company’s shares are traded on the stock exchange, it will be exposed to greater regulation and its value can be affected by market conditions beyond its control.
Management will be subject to additional duties and responsibilities and they will need to have regard to the position of key institutional investors.
The cost of a flotation can also be significant, particularly when compared with the cost of other funding routes. This cost needs to be taken into consideration when weighing up your options.
Of course, companies listed on the stock exchange can efficiently access further capital via issues of shares along with enjoying the other benefits that a float and life on the market will bring. If you are contemplating a flotation, the most important thing to do is to appoint an adviser that will help you decide whether a flotation is the best path to take for your business. It will then guide you through the process.
Getting the right support
Once you’ve decided that a flotation is for you and your business, you’ll need the support of a stockbroker, an accountant and a lawyer. A stockbroker will be responsible for canvassing investor interest in your business and for raising capital. They can advise on the value of the company and the pricing of shares to be issued.
There’s also market testing to reduce risk to consider. Your stockbroker will introduce you to institutional investors who will check out what potential value would be placed on your business if it was to float and what the appetite would be to invest in your company.
Floating can involve restructuring the management team, introducing robust business controls and defining the strategic plan. Your lawyer and accountant will lead on these aspects of the process and also the legal and financial process involved in the flotation.
As an expert in company flotations at Ward Hadaway with more than 20 years of experience, I’ve provided advice to many business owners looking to float.
* Research comes from The EY Fast Growth Tracker which interviewed 371 business owners and alumni from EY’s Entrepreneur of the Year programme about their fundraising and exit plans.
We are holding a series of confidential consultations with businesses and stockbrokers on the benefits of floating, and so call now to book a FREE consultation early in the new year.
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