PROS AND CONS OF LISTING ON THE ASX
The listing experience will not be the same for every company, however here are some pros and cons that most SME's should consider before taking the leap.
Advantages of listing:
- Increased liquidity: listing makes it easy for investors to buy in and out of a company, meaning increased liquidity
- Transparency of company value: the market will set an initial value to the company and interested parties will be able to value the company with relative ease
- Greater access to capital: capital inflows from an IPO are a huge benefit and more capital can be raised through mechanisms such as Rights Issues and Placements
- Less perceived risk: listed companies require high transparency so are viewed as less risky, which makes it easier to not only raise capital but to negotiate debt positions
- International exposure to foreign capital markets: a public company can also list on other markets such as the AIM (the UK's Alternative Investment Market) as a dual listed company for exposure to overseas investors
- Scrip as consideration: acquisition and other corporate transactions can be facilitated with combinations of the company's shares and cash
- Decreased cost of equity: new equity may be available at a lower cost than private financing
- Employee incentives: attract and retain employees by providing equity ownership in the company through stock options and stock purchase plans
- Higher profile: the company's brands and products will be thrust into the public spotlight, with company information available to interested parties
Disadvantages of listing:
- Dilution: an IPO will dilute current shareholders ownership of the company
- Shareholder control: going public means some control is relinquished and can potentially be acquired by unknown or unwanted parties
- Continued disclosure: periodic reporting and other disclosure requirements must be made public at certain times
- Approvals and consents: public companies must obtain shareholder approval under certain circumstances; they may also be required to provide independent written advice before transactions can be taken to shareholders
- 'Fish bowl' existence: the company, its directors and corporate actions will be under scrutiny by employees, shareholders, the public, investment community, regulators and the media, which will not always be favourable
- Listing and compliance expenses: operating costs will rise as the company incurs higher fees for continual disclosure requirements, such as account auditing, maintaining a registry and legal compliance issues for major transactions; annual ASX compliance listing fees will also apply
- Investor relations: for the full benefits of being publicly listed, management will need to engage public relations and keep the investing community informed about company developments
- Distraction from long-term strategy: marketplace pressures can cause the company to focus on short-term results in order to satisfy the market, possibly at the expense of long-term strategy
- Restrictions on directors and officers: directors and officers will face restrictions on trading the securities
- Structure and cultural change: going public may require an organisational change which may impact the business
