IPO

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

You can access finance over and over again

Key consideration

You must be prepared for the rigour and transparency of life as a public company

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.”

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 StageEstablished and growing
Annual turnoverOver £5m; this does not apply to healthcare businesses
SectorsAll sectors; healthcare and tech may be able to list earlier in their lifecycle than other sectors
RegionsAll regions

About the IPO

Purpose of financeAcquisition, product development, new markets
Amount of financeUp to £200m on AIM; over £1bn on the Main Market
Duration of finance 10 years +
Cost of financeYou 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 financeIPO 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

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
Your CEO and Finance Director will be absorbed by the IPO process for at least six months. The director team will need to keep the business running in the meantime
Once you have successfully listed, you’ll be subject to transparency and disclosure rules. This means you’ll be required to disclose business information like company wages, finances and tax
You will need to retain your Nomad, broker, law firm and PR agency for the duration of the time your business is on the market, so should factor in these ongoing costs

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.”

Geoff Nash Corporate Finance Director @ finnCap

What's your next step?

In partnership with, finnCap

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

Other finance options

Corporate Venture Capital
Equity
Corporate Venture Capital is an investment made by a large company into a smaller business, in return for a share of that business.
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Venture Capital
Equity
Venture Capital invests in businesses with high growth potential, often after Angel investors have got the business started.
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Asset-Based Lending
Debt
A business secures finance against its existing assets; these can include invoices and also machinery, property and even intangible assets such as IP.
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