Thanks to an IPO, a company gains independence from banks and fund investors. A stock exchange listing is liberating and invigorating. Capital News Africa: From the Trading Floor, our weekly editorial about financial markets in Africa.
We’d like to point out a crucial difference among today’s companies: Those that are listed on a stock exchange are typically better managed than those that are not. A stock exchange listing acts like a turbo: By doing an IPO, not only does a company join the big leagues. An stock exchange listing open doors that used to be closed, it also promotes transparency and, by extension, trust. Customers and staff as well as the public at large view a listed company more favourably. In short, we believe that a listing makes good companies even better. Finally, an IPO helps to become more independent from foreign investors.
An IPO is a means of communication
Investment bankers and IPO advisors tend to portray an IPO as a complex financial matter. To underscore this, they use financial terms like “greenshoe,” “IPO structuring,” “secondary,” “cash-out,” or “private filings.” Financial engineers see an IPO as a means for a company to raise capital. But it’s not only about that. It’s more about communication.
By offering its stock to the public, a company aims to persuade investors that it is an attractive investment. Of course, after the IPO the company is required to regularly communicate with its shareholders, so that they know how their investment is doing. It should also be pointed out that investment bankers and private equity funds especially like IPOs when they themselves are shareholders in the companies seeking a listing. This is why they try to drag out the IPO process for such companies. They can often make more profit this way.
Freedom from banks
Another major benefit of an IPO is that the company gains independence not only from funds, but also from banks. Not only does a listing provide the company with other means of raising capital for growth, it also makes it very attractive to banks. Whereas such a company used to have to beg for a bank loan, bankers now fall over themselves trying to provide it with finance. But that same company can tap capital markets any time it needs money. This is an enviable position to be in.But what, dear African entrepreneurs, is your preference? To have either one big fund in your company or hundreds, even thousands of shareholders? We believe that the advantages of the latter option speak for themselves. Doing an IPO is the best way a company can invigorate itself and maintain its independence. Therefore, an IPO is liberating and invigorating.