Why float a company

In order to weigh up the benefits and drawbacks of stock market flotation for a company it is essential to undertake a feasibility exercise first, before making any decisions. A flotation feasibility study may be undertaken by your company, if you have the financial and stock market expertise in house. Alternatively, Holland Bendelow can undertake a study on your behalf.

The Harvard Business School undertook a ten year study into the factors that affected the success of newly floated companies. The results were compared with objective performance reviews for a three year period following the initial flotation. The key finding of this comprehensive research was that floating a company successfully required a carefully planned pre—float preparation stage, and that this may be crucial to the success of a stock market listing.

Perhaps unsurprisingly, the most successful companies reviewed in the study were those that prepared well in advance of the flotation. Importantly, the research also showed that a number of non-financial factors had a bearing on the success of floating a company.

Many of the companies that had been most successful once floated had taken time to strengthen their senior management teams prior to the flotation, and had a record of retention of key staff, often through share-based incentive schemes. Existing shares in the company are admitted to trading on a stock market such as AIM, but no new shares are issued to stock market investors in the company.

Floating a company via an introduction is likely to be the most cost-effective method for a company to float on a stock market. The company will issue new shares to a small group of stock market investors; usually these will be institutional investors.

This will be undertaken by a Broker prior to the company being admitted to trading on a particular stock market. A placing also provides a company with the opportunity to raise capital through the flotation at relatively low cost.

Floating a company via a placing is likely to be less time consuming and less onerous than undertaking an IPO Initial Public Offering. An IPO describes a flotation in which shares in the company will be offered to the public, thereby attracting a wide range of shareholders. Because of regulatory requirements, IPOs tend to be the most expensive method of floating a company and therefore this method of flotation is more common for larger companies raising significant amounts of investment capital and seeking a broader shareholder base.

For some privately owned companies, using a cash shell can provide a less risky route to joining the public markets than the more conventional listing and fundraising. Companies are often attracted to floating via a reverse transaction into a cash shell as there is a transparent amount of cash on the balance sheet of the shell company ready to invest in the right company. The cash shell guide. Professional advice is essential. Pricing a new flotation is complicated.

The price may continue to be a matter for negotiation between you and your corporate adviser or broker right until the last minute. Browse topics: Finance and business strategy. To find out more, see our FAQs. Why float your company? Reasons not to float your company Choosing the right UK stock market Choosing advisers Preparing to float your company Pricing your business for flotation The float process 1.

Existing investors can sell their shares as part of the flotation Venture capitalists may want to realise their initial investment once the business has become more established. A founder may want to realise part or all of the value built up in the business. The company can raise capital New shares are often issued as part of the flotation. This can be the best form of financing for companies with volatile or low cash flow, or which already have substantial borrowings.

Investors will be able to trade the company's shares Shares which can be traded are more attractive to investors. The company's shareholder base can be widened, increasing the potential for raising future capital. The float provides a market valuation for the company's shares An initial float on a public market, offering a small percentage of the company's equity, may make it easier to sell further shares in the future.

Key employees can see the value of shares or share options which they have been or will be granted. It can also help provide your key employees with worthwhile incentives. Overall, companies are listed on AIM in For an ambitious growth company, AIM offers several attractive benefits. To list on AIM, as opposed to the Official List, you do not have to show a three-year profits record and there is no minimum number of shares which you must cede to public investors.

A company seeking to float on the Official List must provide a prospectus, including significant detail about your business, its history, finances and prospects, and the reasons and detailed terms of the share offer, which is pre-vetted and approved by the UKLA. Floating on AIM used to be significantly cheaper than the main LSE in terms of commissions and fees, though regulatory tightening has reduced the difference. Selecting advisers can be a difficult process. The lawyers and accountants who have worked for your private company may not be appropriate for the public company scene.

You will naturally want advisers with a good track record on AIM, who understand your business sector and with whom you can develop a good working relationship. A large firm clearly inspires confidence, but it must see you as important and not neglect you.