A listing on the JSE may be just what your company needs to take it to the next level, whether this entails accessing capital for growth, profile building or realising investment for its shareholders.
The JSE ended 2017 with 21 new listings with a total IPO capital raised of R24bn, this is double the capital raised from the previous year. While the number of new listings is obviously closely tied to economic conditions, the decision to list should meet the long-term objectives of the firm rather than only benefiting from a day’s buoyant conditions.
Markets are both cyclical and changeable and share prices move accordingly. Companies looking to list need to take this into account and have a long-term horizon in mind. The decision to list demands an in-depth understanding of a company’s management, resources, stage of development, long-term future goals and strategy.
The pros and cons of listing must be carefully weighed up. The benefits of listing include:
- Gaining access to larger pools of capital, from both an equity and a debt perspective
- Providing shareholders of the unlisted company with a liquidity event for them to monetise all or a portion of their shareholding in the company
- Enhancing a company’s status, and enabling companies to use their shares to fund acquisition
- Enjoying greater exposure to investors and other important stakeholders.
- Enabling a company to attract and maintain good employees and may also enhance dealings with banks, suppliers, distributors and customers.
Taking the first steps
When deciding to list your company you need to consider the following:
- Where is your business plan taking the company?
- What are your likely capital requirements?
- How strong is your competitive position and how can it be maintained and strengthened?
- What is the quality and experience of the management team?
- Are all members of the management team working to the same agenda?
- What outside perspectives, such as non-executive directors, does the board have access to?
- What will attract investors to the company and are you committed to spending time communicating with these shareholders?
The process of preparing for and seeing through a listing is demanding. Inevitably, as this process places additional pressure on the management team involved, if cracks are ever going to appear now will be the time. It is crucial to ensure that the board is unified behind whatever collective decisions have been taken and that all members are able to explain and promote the company’s plans.
It’s therefore not surprising that some companies considering a listing decide against it the first time but return to the idea later when they are better prepared.
The actual listing, however, is only the start of operating in a listed environment. There are a number of considerations to take into account when considering listing on the exchange. These include:
- A reduction of control.The listing will involve ceding a degree of founding shareholder/management control to outside shareholders, especially for significant decisions.
- Disclosure requirements and ongoing reporting.A much higher degree of reporting and disclosure is required, which may require additional investment in management systems, resources and more rigorous application of compliance controls.
- Loss of privacy.Greater accountability to outside shareholders means that directors and management lose much of the privacy and autonomy they previously enjoyed while running an unlisted company. The company’s heightened profile means any under-performance is scrutinised which may have a direct impact on the share price.
- Costs and fees.The overall costs of listing and maintaining a listing must be considered and understood.
- Management time. The listing process and on-going obligations of being listed will require management’s time.
- Additional constraints.Directors’ responsibilities and restrictions are complex. They include a disclosure of total remuneration packages, restrictions on share dealing and the communication of price sensitive information — whether this information is to have a positive or negative impact on the share price.
Notwithstanding the above, the decision to list should be taken on the basis that the benefits to listing (as set out above) outweigh the considerations related to the listing
This article was supplied by Patrycja Kula-Verster from the JSE Primary Markets: Equities Capital Markets for more information of company listings please contact Patrycja on email@example.com