Wed. Nov 13th, 2019

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A Comparison Of Private vs IPO

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Any company has the liberty of remaining private or going public. The lure of going public can be tempting since there is a potential for growth and market exposure. On the other hand, remaining private saves money and maintain profits to the initial stakeholders. Before any firm decides to stay private or go public, it must weigh between the pros and cons of each decision. Here is a comparison of private vs IPO for your consideration.

The pros of remaining private: With minimal analyst coverage and maintaining limits to shares, there are quite a lot of benefits of staying private. First, companies retain their rights for non-disclosure, which ends the need for filing their quarterly finances. It also decreases the worry for a hostile takeover, maintaining the expectations of shareholders and buyouts. Lastly, there is no need to share short-term earnings among the stakeholders, putting more investments to focus on growth strategies. Companies that opt to stay private do not need to alter their policy and focus on meeting the requirement of stock markets.

The cons of going private: There are quite a couple of setbacks that come along with going private despite the advantages at hand. There are possibilities of losing capital, increases possibilities of liabilities, and chances of losing significant shares liquidity value. With regards to the loss of capital, such firms have limited funding due to their inaccessibility to public financing. Therefore, such firms cannot manage to raise enough capital needed for its growth.

The advantages of going public: The main benefit of going public is the capacity to raise a lot of capital and reaching out to a large number of investors. Also, companies have the chance of listing in major stock exchange markets, which can be a great motivator for more investments. Lastly, small companies can seize this opportunity to generate a lot of publicity, increasing their business possibilities. This offers a competitive edge to the company compared with private firms which have limited funding.

The setbacks of going public: There is a significant drawback of IPOs despite their numerous advantages. For instance, the process of going public is time-consuming and expensive since companies which opt for this decision must work with an underwriter. Besides that, public companies have to adopt different management structures that require additional costs and timelines. Companies also put themselves at the risk of decreased freedom in decision making and financial independence. Major decisions require engagement with the stakeholders, which can be time-consuming, leading to a slow growth rate.

The decision to become public or remain private depends on a couple of factors. It is however important to note that the discussion above does not cover all the differences that arise when it comes to private vs IPO.

It is advisable to avoid going public if your company is not big enough to sustain the public offering. It is better to remain private other than facing de-listing from the stock exchange when a company fails to gain a strong following. On a brighter note, if your company has the potential of going public, ensure that the company focuses on business growth rather than spending a lot in marking itself in the stock market.

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