Is It Time To IPO?

You know the bulls are back when you start seeing articles urging business owners to consider listing their business on a stock exchange.  This is done by way of an initial public offering or IPO.

While listing your business on a stock exchange can be a great way for you to exit your business it’s only one of a number of exit options.

Also, like all business exit options, IPOs have their pros and cons.

On the positive side, you’re likely to get a much higher value placed on your business in an IPO and, as a listed company, you will usually get flow on commercial benefits by having a higher public profile.

The disadvantages are that IPOs are generally costly, time consuming and complex and will result in your business having much higher ongoing compliance costs.  In addition, as an owner or founder of your business, your shares will generally be escrowed for a period of time.  You therefore won’t have the opportunity to actually exit until quite a long time after your IPO.

So what are some of the other options when it comes to exiting your business? 

They include:

  • selling your business to a larger, usually listed company, often referred to as a trade sale;
  • passing your business on to younger members of your family, a common option when they are actively working in the business;
  •  selling to a private equity or venture capital firm;
  • selling to your management team by way of a management buy out (MBO); and
  • breaking your business up and selling different parts to different buyers.

Like IPOs, each of these business exit options have their own pros and cons.  Also, every business is different.  The key then is to look carefully at all the characteristics of your business and your requirements as an owner and then decide which exit option best suits you and your business.  In many cases, there will be one or more exit options worth seriously considering.  In other cases, it will quickly boil down to one obvious exit option.

We always encourage clients to do two key things well before they actually want to exit their business.

First, get familiar with the various business exit options.  There is plenty of information around about each of the exit options so find out about them and get a feel for what is likely to give you and your business the best outcome. 

For example, if passing on your business to family or your current management team (both very common options) is important then a succession style exit or MBO is likely to best suit you.  If your business has very strong growth potential, and would be better positioned to realise that potential with more capital, then an IPO or sale to a private equity firm is more likely to be the better exit option.

Secondly, once you have decided on the best exit option or options take that into account as you run your business.  The various exit options are very different and what you need to do in your business during the 2 or 3 years before you exit to get the best outcome is very different for each option.

For example, if your preferred exit option is by way of an MBO then going to your management team only a few months before you want to exit won’t give them anywhere near enough time to think through the opportunity and get ready for it. 

All too often we see business owners decide on an exit option far too close to the time they want to exit and get disappointing outcomes as a result.  Good forward planning always results in better outcomes.