The term “public listing” is synonymous with “Initial Public Offering” or IPO. A private company aiming for growth and expansion can engage in public listing to raise capital. By the time the company CEO has formally signed in the stock exchange on the day of the IPO, the company is then considered a public entity and therefore a “publicly listed” company in the stock market.
Purpose of Public Listing
Prior to the IPO, there should be an agreement among private company founders on the amount of capital to be raised and on the spending plan for that capital. It is that during the planning stage, one or two of these IPO objectives would be voiced out by someone from the management team.
· Purchase new equipment, software, or build infrastructures.
· Diversify products or services through research and development.
· Expand the operation into new regions.
· Repay the old or existing debts of the company.
· Gain more money out of the original investments.
Public Listing Process
While IPO has become a popular jargon in business and economics for decades, it is actually a complex and meticulous financial process that takes time and money to execute. It starts with a private company hiring an underwriting firm or investment banker to assist them in the entire course of the IPO process. It goes without saying that for a company to become a publicly listed one, it should also invest on people, time and money.
By going public, a company is assumed to be co-owned by new group of investors. They are the same investors whom before the IPO, or during the “road show”, showed interest on becoming a part-owner of that particular company. Based on public listing rules, a company that intends to sell its equity in the form of shares of stock can choose the exchange where it wants its shares to be traded electronically. It can be on NASDAQ, NYSE or any stock exchange in a certain country subject to its existing business rules and trading policies.
Roles of the Underwriting Firm and Issuing Company
It is the underwriting firm that assists the IPO issuing company in conformance with the public listing rules set upon by the Security and Exchange Commission (SEC). The SEC is an organization that reads, interprets and approves a prospectus based on the public listing regulations, legal aspects and financial policies. During the entire course of public listing, the underwriter performs the following primary duties and responsibilities.
· Set the target or initial offering price for the stocks
· Assist the company in creating the prospectus (a formal legal document filed with the SEC)
· Help the company to balance the supply of shares with the demand of investors
· Distribute shares out to the right investors through known distribution channels and contacts
The success of a public listing undertaking highly depends on the collaboration between the issuing company and the underwriting firm. Their goal is to make the IPO happen on-time, on-target and in accordance with the SEC rules. On one hand, company executives have to ensure that they have the well-written business plan ready to be presented to the potential investors prior IPO. On another hand, underwriters must dedicate its expertise in creating the prospectus that the SEC will approve.
Becoming Successful with IPO
The price per share is what will determine the fate of a company from the hands of the public investors from the IPO day up to about a month of stock trading. The target price could rise or dip depending on the supply and demand of the shares. A company is said to be successful in public listing if it was able to surpass its target capital due to the appreciation of its share value (which is often the case).
Once a company goes public, its executives, employees and stakeholders must work together aimed at ensuring the satisfaction of its shareholders.