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The Main Advantages of an Initial Public Offering (IPO)

While contemplating the idea of taking a company public via an IPO (Initial Public Offering), the increased capitalization for the issuing business is a strong point to consider, since a public offering creates a market value on a company’s stock. Company directors and shareholder can retain their stock and use it for varied activities, such as: currency for mergers and acquisitions, as stock options to help retain key personnel, they may also sell their shares in the open market.

Additionally, the business will have greater access to the capital markets for future capital inflow. In general terms, a company’s valuation and debt-to-equity ratio will improve after going public, making it possible for the company to receive much better terms from lenders.

While undertaking an IPO a company is doing two things simultaneously:

• It is offering shares for sale to the public

• It is also raising capital 
   

There is no doubt that offering securities to the investment public will help a company’s management and directors retain a large degree of control, as opposed to many other capital funding scenarios.

For example, if a private company decides to use the services of venture capitalists to raise capital, instead of going public, the VC’s (Venture Capitalists) might insist on a decision-making position, such as a seat on the board of directors. When a company decides to raise capital via the going public process of an IPO (Initial Public Offering), those unpleasant considerations are avoided.

No doubt the prestige related with becoming a public company has a definite appeal. The fact that it’s easier to promote a public company is also a pertinent consideration because the funding resources available to public companies are much better than what’s available to private concerns.

Public companies have historically achieved higher recognition than private companies; hence, the public relations image and the perceived stability of being a public company is a plus. All the above considerations should come into play when you are considering the pro’s and con’s of going public via an IPO (Initial Public Offering).