MAIN ADVANTAGES OF GOING PUBLIC
A number of facts might contribute to the company’s decision of going public in the stock exchange and there could be plenty of advantages with this decision. Generally speaking, when people hear about a public company they usually thing in large corporations; However, the entry of small and medium size companies in the stock exchange is also possible and it receives support from B3 (the main Brazilian stock exchange). By going public, the company can, for instance, access third-party’s capitals by issuing debt bonds, or accept new partners, who will become a member from shareholders structure. But that requires some preliminary procedures to be followed, culminating in the company’s first stock offer in the stock exchange, what is called “Initial Public Offering – IPO”.
In this first distribution of stocks, the company issues and sells the stock to the market, and the seller – which might be the company itself or the shareholders – receives the amount earned from this transaction. It is also possible to issue the stocks only, without offering them for sale, keeping them in the stock exchange showcase in order to check the market reaction. Going public obviously requires that the company improves its corporate governance to achieve a minimum standard of good practices, which are recognized by the market and bring more safety to investors. In addition, the corporate governance may also add value to the business operations and distinguish them from their competitors.
The access to news sources of funding to finance company’s investment projects and the increase of competitiveness are the most common motivation to a first public offering. The IPO engages national and international investments from businesses interested in the company’s projects, and these resources have generally a lower raising cost comparing to other financing ways. Besides this, public companies tend to be less affected by the economic volatility and, with better governability skills, allow their executives to plan the future of the business with more assertiveness. Overall, it represents a risk reduction to the company because the business is constantly evaluated and must follow strict norms and guidelines, which are necessary to assure the activity’s compliance and enable a greater volume of deals using stocks as trade currency.
Whereas the companies’ assets might be used to acquire other companies, which means that they will be appreciated before the market, they will begin to obtain the assets purchase without using their cash, so without reducing the operational capital. It allows to speed up the companies’ growth and contributes to fund their image in the market. In fact, the image is really important, once the companies get a high visibility in the national and international scenario, what makes them to improve their investment projects report to raise more investors.
These advantages, linked to other benefits like assets liquidity and the strengthening of clients, suppliers and other stakeholders, make the IPO an excellent instrument, which contributes to a virtuous cycle growth and creates big opportunities in Brazil and in the whole world.
By Eliseu Schenkel da Luz