Initial public offering (IPO)
Selling shares on the public markets to attract investors, without giving up a controlling stake in your business.
An IPO (initial public offering) is the first time a business raises finance publicly. Before that, it can only use private investment.
Going public allows your business to raise large sums of money from new investors. Because there are lots of investors with a small percentage of ownership, but no majority stakeholders, you can retain control of the business.
An IPO is sometimes referred to as either ‘listing’ or ‘floating’ on the public market. In the UK, public markets (see below) sit within the London Stock Exchange.
This method is often called ‘long-term capital’ or ‘patient capital’, as businesses can use it to raise money time and time again, over years and even decades.
Once your business is a public company, you have to regularly disclose financial information. You must update shareholders and the market with half-yearly and annual results.
What are the different IPO markets?
- Main Market – for larger businesses; home of FTSE 100 and 250
- High Growth Segment – for tech-specific businesses not quite ready for the Main Market
- AIM – for smaller, growing businesses looking to scale
The AIM market is the world’s most successful growth marketLink opens in a new window, so it’s suited to smaller businesses that are looking to grow. AIM has less prescriptive rules than the Main Markets to make sure that businesses can go public and raise finance as easily as possible.
Nominated adviser or sponsor
Your nominated adviser (often called a ‘Nomad’) on AIM, or your sponsor on the Main Market, helps prepare and admit your company to the public markets.
Manages your fundraising activity on the market.
Responsible for detailed financial reporting.
Performs due diligence and oversees the listing from a legal perspective.
Manages the register of your shareholders.
Financial PR firm
Helps craft your story and maintains media interest in your company.
It’s easy to raise more money once you’ve listed your business, without having to go through the process again.
On AIM, there’s no minimum ‘free float’ criteria (the percentage of the business put on the market). You’ll be notified if one investor tries to buy beyond your pre-set threshold.
Increases brand profile and awareness
This can help boost sales.
Gives staff an incentive
With employee share options.
Secondary market for shares
This allows existing investors to exit.
No guaranteed return
You may not achieve the valuation you had hoped for.
There are charges involved in retaining your appointed advisers, including your broker, law firm and PR agency.
About your business
- Business stage: Established and growing
- Annual turnover: Over £5m (does not apply to healthcare businesses)
- Sectors: All (healthcare and tech may be able to list earlier in their lifecycle than other sectors)
- Regions: All
About the finance
- Purpose of finance: Acquisition, product development, new markets
- Amount available: Up to £200m on AIM, over £1bn on the Main Market
- Duration of finance: 10 years or more
- Cost of finance: You'll need to appoint your advisers, build your board and spending time making the business ready for public life. An IPO can cost approximately 8% of the amount you hope to raise.
- Time it can take to get finance: IPO processes take 10–12 weeks, but planning and negotiations can take 12–18 months
Ask an expert: Geoff Nash, Nomad and corporate finance director at finnCap
What do you look for in a business?
Management and track record
- done this before?
- had success in public or private markets?
- grown a business?
- done it well?
Is your product commercially viable? Can you prove it? Are you profitable? How much profit?
Scalability and opportunity
Does your product or service have national and global appeal? Will it translate into other markets?
An IPO can take months and sometimes years, so take your time when choosing business advisers. They’ll be with you for the duration of your life as a public company.
The IPO process will absorb your CEO and finance director for at least six months. The director team will need to keep the business running in the meantime.
Life as a public company
Once you’ve successfully listed, you’ll need to comply with transparency and disclosure rules. This means you must disclose business information like company wages, finances and tax.
You’ll need to retain your Nomad, broker, law firm and PR agency for as long as your business is on the market. As a result, you should factor in these fees when determining your outgoings.
lPOs are often years in the making — and there’s lots of planning to do upfront. Once everything is in place, the process takes between 10–12 weeks.
This infographic outlines what it takes to complete an IPO.
To learn more about how to list on the public markets, read the London Stock Exchange guide for entrepreneursLink opens in a new window
“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.”
|Geoff Nash Corporate finance director, finnCap|
Other finance options
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