What Are The Benefits Available To Private Companies That Go Public?

These days private companies are trying to build corporate awareness by releasing

figures in online press releases with the hopes that it would attract potential investors. In fact, there are several good reasons why some companies prefer to stay private, but with the advantages of going public, a lot of companies are starting out as private companies and then later take their company public through an IPO (Initial Public Offering) to raise some capital.

Here are some distinct advantages to taking your company public:

1) Access to capital - Private companies are sometimes considered a high risk and you'll find that investment bankers and brokers are more open to dealing with a public company as opposed to a private company. There are regulations in place that a public company needs to uphold, and this makes it more transparent for investors if they need information before deciding to invest.

Investors also enjoy the fact that they can purchase stock below the market price, which acts as a benefit to potential investors. If you have a company that has publicly traded, then you can issue stock or bonds to the general public that will help your company to grow.

Another advantage is that a public company can convert debt to equity and don't have to pay it back in conventional terms. By having a public trading symbol and a quoted stock price you also ensure that you increase your companies visibility and prestige and it will lead to investors having more confidence in your company.

2) Higher valuation - A private company in comparison does not get valued as high as a publicly traded company. By selling less stock at higher valuation, a public company can raise the same amount than that of their private counterpart, and that much easier. However, a private company going public, can even enjoy much higher valuation than normal in the right circumstances.

3) Employee options - By offering stock options as a publicly traded company, you can offer existing and potential employees attractive packages. The same cannot be said for privately held companies.

4) Mergers & Acquisitions - It's real easy to undertake a merger and acquisition when you have a public company, which means the company stock becomes more valuable with the acquisition of other businesses. Business relationships will expand and this will also add to consumer confidence in your company or brand. Through a public company's corporate strategy, annual reports and SEC reporting, investors are more likely to invest in them because it encourages corporate growth and development.

5) Prestige and an Exit Strategy - Co-founders and managers in a publicly traded company enjoy personal prestige by being associated with the public company. This in turn can lead to attracting better employers and management as well. It helps to spread the companies reputation and create key business relationships that will be profitable for everyone.

Potential and current investors also like to know that the company has an exit strategy if it decides to sell in the future. This benefit promises great freedom and reward to investors and management, and overall this provides liquidity to investors. Stock can also be used to secure loans since it acts as collateral, whether some people know it or not.

The biggest drawback as a private company is that you cannot advertise and you can only raise capital from friends, family and colleagues or acquaintances. So consider the benefits of taking your private company public through an IPO. It's well worth your time to atleast consider it.

by: Jason Bacot

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