An IPO is when a business sells shares to multiple investors on the public markets. It allows the business to attract investors, without giving up a controlling stake.
IPOs on AIM help growing businesses operate in more than 100 countries, across 40 sectors, with a combined worth of over £70bn
Key requirement
You must be a well-organised business, which can provide full financial and managerial information
Key benefit
Key consideration
What is an IPO (Initial Public Offering)?
An IPO is the first time a business raises finance publically. Before an IPO, a company can only raise funds privately. Going public allows businesses to raise large sums of money from new investors. This means the entrepreneur can retain control of the company, because there are lots of investors with a small percentage of ownership but no majority stakeholders.
An IPO is sometimes referred to as either ‘listing’ or ‘floating’ on the public market. In the UK, public markets sit within the London Stock Exchange.
An IPO is often called long-term, patient capital because businesses can easily raise money time and time again, over years and even decades.
Once a business is a public company, they have to regularly disclose financial information. They must update shareholders and the market with half yearly and annual results.
What are the different IPO markets?
- 1
Main Market - for larger businesses; home of FTSE 100 and 250
- 2
High Growth Segment – for tech-specific businesses not quite ready for the Main Market
- 3
AIM – for smaller, growing businesses looking to scale
The AIM market is the world’s most successful growth market, so it’s suited to smaller businesses looking to scale. AIM has less prescriptive rules than the Main Markets to make sure that businesses can go public and raise finance as easily as possible.
“IPOs give companies credibility, visibility and profile. They’re a stamp of quality, a chance to get your brand out there and an opportunity to make sure everyone knows who you are and what you do.”
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Geoff Nash Corporate Finance Director @ finnCap |
What are the benefits of an IPO?
Long-term finance
It’s easy to raise more money once you’ve listed your business, without having to go through the process again.
Retain control
There’s no minimum ‘free float’ criteria (the percentage of the business put on the market) on AIM. You’ll be notified if one investor tries to buy beyond your pre-set threshold.
Increases brand profile and awareness
Which can help boost sales.
Incentivises staff
With employee share options.
Secondary market for shares
So existing investors can get out.
What are the risks of an IPO?
Return
You may not achieve the valuation you had hoped for.
Costs
There are costs involved in retaining your appointed advisers, including your broker, law firm and PR agency.
Is an IPO right for you?
About your business | ||
| Business Stage | Established and growing | |
| Annual turnover | Over £5m; this does not apply to healthcare businesses | |
| Sectors | All sectors; healthcare and tech may be able to list earlier in their lifecycle than other sectors | |
| Regions | All regions | |
About the IPO | ||
| Purpose of finance | Acquisition, product development, new markets | |
| Amount of finance | Up to £200m on AIM; over £1bn on the Main Market | |
| Duration of finance | 10 years + | |
| Cost of finance | You will need to appoint your advisers, build your board and spending time professionalising the business ready for public life. An IPO can cost approximately 8% of the amount you hope to raise. | |
| Time to finance | IPO processes take 10-12 weeks; but planning and negotiations can take 12-18 months | |
Ask a Nomad - what do you look for in a business? - Geoff Nash, finnCap
- 1
Management and track record
Have they done this before? Have they had success in public or private markets? Have they grown a business? Have they done it well?
- 2
Financial profile
Is your product commercially viable? Can you prove it? Are you profitable? How much profit?
- 3
Scalability and opportunity
Does your product or service have national and global appeal? Will it translate into other markets?
IPO considerations
How do you apply for an IPO?
“The IPO is not the end of the process, it’s the start of your journey as a public company.”
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Geoff Nash Corporate Finance Director @ finnCap |
What's your next step?
Who's involved?
Nomad or Sponsor
- Your ‘Nominated Adviser’ (Nomad) on AIM or Sponsor on the Main Market helps prepare and admit your company to the public markets.
Broker
- Manages your fundraising activity on the market
Accountant
- Responsible for detailed financial reporting
Law firm
- Performs due diligence and legal oversight
Registrar
- Manages the register of your shareholders
Financial PR firm
- Helps craft your story and maintains media interest
