Going public costly and time consuming, experts say
TSX investment seminar gives entrepreneurs sober advice on this business strategy
Western Canada’s oil patch is made up of a lot of companies. Some of them are public, but there are many privately owned firms.
Inevitably, management of some of these private companies will at least think about going public at some point. So it was interesting to hear a panel of Alberta experts talk about this subject at an investment seminar hosted by the Toronto Stock Exchange (TSX) and the Toronto Venture Exchange this week in Edmonton.
The panel included Melinda Park, a partner at the Calgary office of the Borden, Ladner and Gervais law firm; Gordon Keiller, a partner in the audit and assurance group with PricewaterhouseCoopers’ Edmonton office; and Jason Marino, a partner in the Edmonton office of the Bennett Jones law firm.
Going public certainly has its advantages – access to a larger pool of capital to fund growth plans is one reason why companies take the plunge.
But as the panel made clear to seminar attendees, going public and launching an initial public offering (IPO) isn’t the proper fit for every private company. Here are a few things these experts said to keep in mind if you are considering taking your company public.
It’s time intensive: Park referred to the work required to get ready for an IPO as a “time suck” for management. There are lots of rules to follow once you become a public company and Marino said the time it takes to get on top of that prior to going public surprises many private firms. “Boards get frustrated with the time they are spending on compliance rather than focusing on strategy and brainstorming,” he said.
It’s expensive: Companies who want to go public can’t do it by themselves. Accountants are required to pore over financial statements, and lawyers must be hired to ensure their clients aren’t running afoul of the requirements for listing on the TSX. And this outside expertise isn’t doing it for free. Marino says fees paid to professional service firms who help private companies go public can range anywhere from $100,000 to $500,000. “It’s a costly exercise no matter how you slice it,” he said.
It requires some soul searching: Park pointed out that the best laid plans to become a public company often fail because that private oilfield services or exploration firm did it for the wrong reasons and had unrealistic expectations. “It’s got to be the right fit for you, your management team and your investment community, ” she said.
Marino added that it’s also important for private companies to be sure their business will appeal to a fickle marketplace once it is listed on the stock exchange. “If you don’t have a story you can sell to investment bankers, and they don’t feel they have a story to sell to the marketplace, that’s probably the end of the road right there.”