Going public pt 1: Three benefits of listing your shares

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In a series of blog posts, different aspects of going public will be explored, starting today with the reasons for listing your shares.

As reported recently, tech companies listed on Swedish markets have outperformed the OMXSGI index of all shares listed on the Nasdaq Stockholm Market. In a market climate where the so-called ”IPO window” is still open (that is, where companies making their first public offering of shares are generally well-received by the market), it is natural that tech companies see a market listing as a viable source of continued financing and possible exit for founders and early investors.

Let’s look into some of the basic aspects of going public.

When it comes to benefits of going public, three reasons are commonly mentioned as drivers for listing a company’s share:

Firstly, there is the enhanced possibility for existing shareholders to exit and realise the value of their investment, a particularly interesting aspect for founding individuals and venture capitalists. However, it shall be noted that the market normally expects that current shareholders shall refrain from selling for a certain period from the IPO, so-called lock-ups.

Secondly, going public facilitates the acquisition of new capital from the market through the issue of shares, and allows for the company to raise financing from a broader base of investors. This is an obvious reason for listing a company, and a very appreciated one, since companies thereby are given the opportunity to fund and develop their research, hire more people etc. It is furthermore easy to determine the value of public shares, and they are thus suitable as currency when acquiring other companies.

Thirdly, there is the marketing aspect of a listing. Investors tend to view a listed company as having a “seal of quality”. The extensive rules that a listed company is subject to result in a certain level of transparency which investors naturally find attractive. Hence, a listed company may be considered with greater respect and tend to enjoy a higher status at the negotiating table, especially amongst foreign investors. Additionally, a listing attracts publicity, which in turn enhances brand recognition and makes way for an enlarged customer base. This also adds a certain leverage when negotiating loans and interest rates with financial institutions.

Next up in this series; the difference between regulated markets and multilateral trading facilities from a company perspective.

For more information, please contact Oskar Belani.

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