Considering flotation

 

Deciding whether to float your company on a stock market is an important decision. Most successful privately-owned companies will eventually reach a stage in their development where they consider whether the next natural step is to join a public market. We understand that joining a public market is one of the most significant decisions a business will ever take. We aim to providing companies a platform to achieve their long term strategic ambitions.

Capital

Companies need access to finance to fuel their future growth and development. Whether your aim is to raise money when you join or at a later stage, joining one of our markets can facilitate access to London's deep pools of capital.

Liquidity

Our trading services are designed to maximise liquidity in the securities traded on them. A public quotation offers:

  • a real-time share price
  • diversification of your shareholder base
  • a sound basis for company valuation
  • potential access to certain indices (depending on the market you choose to join and meeting certain criteria).

Profile

A public quotation on a stock market increases your company's profile. It can enhance the view that investors, shareholders and other stakeholders have of your company, its ambitions and the way in which it meets its obligations .

In addition, it can help to enhance your relationship with current and potential customers and suppliers, increase the opportunities for partnering with UK and international companies and strengthen employee commitment via share ownership schemes.

The decision to go public involves a great deal of consideration for your management team, and consultation with your advisers.

How are securities traded?

London Stock Exchange provides an active and efficient secondary market for trading in a wide range of securities, via a number of different trading services. The appropriate platform for your securities will be determined by a number of factors.Our trading services are designed to maximise liquidity in the stocks traded on them. From our premium fully electronic order-driven trading platforms for liquid UK and international securities, through to our quote driven market maker platform for less liquid securities.

What to consider

To make sure that a flotation is the right step for the company, there are five main questions you need to ask:

  • Will my company be able to maximise the benefits of joining a public equity market?
  • Is your company ready to float?
  • Which is the right market for you?
  • What  type of security do you want to admit to the market?
  • How will you utilise your flotation now and in the future?

When deciding whether your company is at the right stage for flotation, there are a number of questions that need to be addressed from a management and adviser perspective:

Management questions

  • Does your company have a clear strategy and business plan?
  • Is the structure of the board suitable and robust?
  • Are the members of the management team prepared for the greater disclosure, openness and accountability that investors and the market require following flotation?
  • Is the management team ready to invest the time and effort to get your company ready for flotation?
  • Is the current structure of your company appropriate for life as a publicly traded company?

Methods of joining

You will need to discuss the different methods of going public with your advisers. There are three principal ways to come to market, ranging from an 'introduction’ to the market – where no new money is raised – to an ‘initial public offering’ (IPO), where institutions and private individuals are invited to subscribe.

Companies can also undertake a ‘placing’ in which shares are offered for sale on a selective basis, primarily to institutional investors.

Your choice will depend on the nature of your business and its capital requirements.

Introduction

In an introduction, a company joins our markets without raising any capital. In general, a company can do this if over 25 per cent of its shares are already in public hands and there is already a spread of shareholders. An introduction involves no underwriting fees and little requirement for advertising. However, the opportunities for boosting your company’s profile and visibility are therefore limited.

Placing

A placing usually involves offering your company’s shares to a selected base of institutional investors. This allows you to raise capital with lower costs and greater freedom and it gives your company more discretion to choose its investors. The result, however, is a narrower shareholder base, and as such there may be lower liquidity in the shares once your company has been admitted to market.

Initial public offering

In an initial public offering (IPO), your adviser offers your company’s shares to private and/or institutional investors and usually arranges for the offer to be underwritten. An IPO attracts a wide range of investors which are important in increasing the liquidity of a company’s shares. IPOs are usually closely followed by media, which when conducted appropriately will even further enhance company’s profile.