- Raise Equity in the Capital Market
- Stock Markets to Float Your Company
- Companies from the United States
- Issue Debt to Raise Capital
- Recommended Corporate Structures
- Investment Documents
Swordblade & Co has the expertise and proven track record to help you navigate the IPO process. We are a one-stop shop providing a mix of advisory and support services to small companies such as micro caps and nano caps. Our advisers bring all parties together, assembling a dream team of resources and professionals to complete successful stock market listings.
An initial public offering (IPO) is when a company first sells its shares to the public on a stock exchange, turning a private enterprise into a public one. This is also known as “going public,” and it allows a business to raise capital by issuing new shares. With access to more funds, a company is better positioned to grow and expand, but there are many other reasons for an IPO, such as early investors wanting to cash out.
The company offering its shares is known as the issuer and will decide how many it wants to offer. The issuer will work with an investment bank or group of investment banks who act as underwriters, buying the shares from the company before transferring them to the public market. The underwriters also consult on the IPO and suggest an initial price for the shares based on the demand for them, among other responsibilities.
An IPO is a big event for a company. To commemorate it, most stock exchanges hold a ceremony. At the New York and London stock exchanges, companies ring the opening bell, while in Hong Kong, they hit the ceremonial gong. A few of the biggest IPOs in recent history include General Motors in 2010, raising $18.15 billion, Facebook in 2012, raising $16.01 billion and Alibaba Group in 2014, raising $25 billion.
An IPO is not the only way for a company to float. Other options include direct listings and reverse mergers.
An initial public offering is a significant step for a private company. It is a complicated process that can take several months or years, depending on various factors, including market conditions and the overall readiness of the business. There is no one-size-fits-all approach to floating a company.
At Swordblade & Co, we’ll act as your lead adviser, facilitating the process and supporting your journey from a private to a public company.
Step 1: When a company is ready to go public, typically after a track record of growth, it hires an underwriter. For large enterprises, this is usually an investment bank or several banks. They lead the IPO process and act as intermediaries between the company and investors.
When you engage Swordblade & Co, we will help you find an underwriter, typically a financial adviser such as a wealth manager who has a network of clients interested in purchasing securities. But it will be challenging.
You will only be able to hire an underwriter if they’re confident enough in your company to put money and resources into selling your stock. Most businesses are unknown entities and therefore present a high investment risk. This is one of the reasons why going public via IPO is so complicated, especially for smaller enterprises such as micro caps and nano caps. It isn’t easy to convince underwriters. If we don’t find an underwriter, we can help you do a direct listing which, in our opinion, is a better route to going public.
Note that before floating on a stock exchange, a private entity creates a holding company that acquires its assets. This is the company structure that is floated, not the operating company.
Step 2: We prepare a registration statement and help you choose a firm of solicitors to create a draft prospectus. This document will include a detailed financial report and a lot of information about your business. Everything is coordinated with the underwriter, who will show the prospectus to potential investors to help them make informed decisions.
Step 3: The underwriter performs due diligence to verify facts disclosed by your company and assess its market maturity.
Step 4: Filing an application to the stock exchange where you intend to float. At this stage, we might also organise a meeting with the exchange. Each stock exchange has a network of corporate advisers that perform due diligence for a company’s suitability for that market. For example, the AIM (Alternative Investment Market – a submarket of the London Stock Exchange) has NOMADs (nominated advisers). They advise and guide companies on the admission process, assess their suitability for admission, help them prepare their paperwork and file it in the way prescribed by the exchange.
Step 5: You will need to create a buzz to ensure the IPO is a big-ticket event, so you’ll accompany the underwriter on a travelling roadshow. This is an intense one to two-week series of meetings and presentations to pitch institutional investors, highlighting your business’s future growth trajectory and likely market share. It is a whirlwind of activity that can involve five or more meetings a day. This process is also known as “book building,” capturing and recording investor interest and demand for shares.
During this stage of the IPO, Swordblade & Co can provide additional support, facilitating meetings and making introductions. We have a network of high-net-worth individuals who are sometimes looking for new and exciting investment opportunities.
Step 6: Once the initial block of shares has been sold or subscribed, you’ll liaise with the underwriter to set an initial price for the stock and set a date to begin trading.
Step 7: It’s IPO day! During the morning, shares are allocated to investors, and later, trading starts on the open market. Shares often fluctuate widely on the first day, and underwriters may engage in price stabilisation activities.
To stabilise volatility, underwriters can purchase and sell additional shares, which can smooth out price fluctuations. If demand is weak and the price falls, they can repurchase shares from investors to help boost the stock price.
Becoming a public company is an expensive and time-consuming process but comes with significant advantages.
Access to Capital: The biggest benefit of an IPO is the capital raised. Companies can generate significant funds with an IPO to acquire new technologies or other companies, invest in research and development, pay off debt, hire new employees or bankroll many other possibilities.
Higher Profile: An IPO gives companies access to a wider investor base and creates greater public awareness of their products and services. This higher visibility may confer a competitive advantage over other companies in the same industry, which could lead to an increase in market share.
Attract Top Talent: Companies can offer stock options as a bonus or part of a contract to attract and retain key people.
Exit Opportunities: Typically, company founders contribute a lot of time, money and resources with the hope of creating a successful enterprise. Often, these early backers go for years without seeing a significant financial return. An IPO gives them an exit opportunity where they can receive significant financial rewards for their contributions. Venture capitalists often use IPOs to cash in on successful companies they helped to create.
Before deciding to go public, there are several downsides to consider.
Costs: Going public via an IPO is expensive. The underwriters’ commission is the most significant cost, typically between 3% and 7% of the offering. Other expenses include legal fees, listing fees and securities commissions’ filing fees.
Increased scrutiny and accountability: Public traded companies are subject to oversight by regulators and are under pressure to meet market expectations. Public disclosure rules require them to provide information to the public, such as financial reports, tax and other business information. Some of this may be sensitive and, by being public, can also be seen by competitors.
Loss of Control: An IPO dilutes the ownership of a company. Shareholders obtain voting rights and can effectively control company decisions through the board of directors. When shareholders gain a significant ownership stake in a company, they can vote to override management decisions or even sack managers and directors.
Increased demands on time and resources: Being a public company means having to meet extensive reporting requirements, including preparing and filing quarterly and annual financial statements. These obligations demand a significant time commitment from senior management and other personnel and result in additional costs.
Lock-Ups: Company insiders such as employees and early investors cannot trade shares for 90 to 180 days from the IPO day. The purpose is to stop large investors from flooding the market with shares, which could drive down the stock price.
If your company is planning to go public and raise funds on the capital markets, we look forward to hearing from you.
The easiest way to get started is to request a free evaluation. By providing minimal information about your company and capital needs, we will be able to provide you with a quick assessment by email. In most cases we can tell you if your business is ready to go public, or not yet.
We’ll also let you know if we think that Swordblade & Co are a good fit for your flotation plans, and anything else that we may think can help you.
Alternatively, if you are ready to talk in depth about floating your company, we recommend you arrange a paid consultation with one of our partners. It can usually be scheduled within a few days and is the fastest way to get detailed advice.