Going public is a financial term used to describe the first time that a company offers shares to the public. The shares offered are referred to as an initial public offering, or IPO. There are many advantages and disadvantages to going public, and the matter takes careful consideration before decisive action is taken.
When a company decides to go public, it typically contacts an investment bank. Working together, the company owners and investment organization determine how many shares will be sold in the IPO, and what the price will be. The bank serves as an underwriter in this process, meaning that it buys the IPO shares and then sells them to the public for a profit. The price and amount of shares offered is critical to the future of the company; it will determine how much power the original owners retain, as well as how much potential capital can be raised by going public.
There are a variety of reasons for a company to go public. Generally, it is an opportunity for expansion through the generation of new capital. In order for expansion to be successful, the company must usually have a track record of innovation, profit, and competitiveness in the market. This will make the IPO attractive to buyers, who will want to buy shares of a company that is already doing well on the bet that profits will continue to improve.
A company that is traded publicly may also gain a reputation as a stable company. Since public companies need a decent profit record to begin with, to some extent, going public brings the company to a whole new level in the eyes of potential investors. Public companies may have an easier time attracting highly qualified employees, and may offered more opportunities for investments and partnerships. The publicity of going public can also boost sales by improving the visibility and consumer recognition of the brand or products.
The disadvantages of going public should be scrutinized before the deal is made. By selling shares, the original founders and owners will lose some amount of power over the company. Public companies are also usually subject to closer scrutiny and may need to be more transparent about policies and decisions than private companies. It is important to know that the process of negotiating with an investment underwriter and creating an IPO may be very expensive; should the public offering fail to attract shareholders, this capital may be irretrievable.
