Ask the experts: What should I consider when taking my company public?Be prepared for increased challenges and scrutiny when going public
Peter Brady: Director of Corporate Finance, BC Securities Commission
There are many important considerations to think about when taking a company public. Among them are the cost of preparing and filing a prospectus, the ongoing costs of maintaining a public company (some estimate the minimum annual expense at around $200,000) and the fact that much of a public offering's success depends on unpredictable market conditions. As well, there are founders' share restrictions and new restraints on management.
Another factor to consider is the increased disclosure required of public companies. You need to ask, "Is my company prepared for the increased level of scrutiny?"
Disclosure requirements for public companies take many forms, including interim and annual disclosure, press releases and material change reports, as well as additional disclosure requirements for senior management and shareholders (insider reports and early warning reports are two examples).
Who is this disclosure intended for? The investing public, certainly. But also the regulators, who might require that you make changes if you fail to comply.
It's important to note that regulatory oversight is increasingly becoming a fact of life in the private placement market. For example, the BCSC reviews offering documents and reports prepared by private companies for so-called "exempt" distributions. However, there is no question that for public companies, added disclosure requirements will touch virtually every aspect of a company's operations.
Of course, the added challenges of going public have to be measured against the significant benefits of accessing public markets. For a company looking to finance growth or large capital projects, engage in M&A activity or access a wider range of financing options, taking it public might remain the best option, providing the company enters the process understanding the changes that lie ahead.
Angela Blake: Associate, Clark Wilson LLP
While going public can give your company a higher profile and the potential to attract greater amounts of capital through public markets, there are a number of factors that boards need to turn their minds to before making such a decision.
•Will you have sufficient capital? Taking a company public is an expensive process. Once public, in addition to the substantial fees that need to be paid to regulators and stock exchanges, you can expect your legal and auditor fees to increase dramatically. In a down market, it might be hard to raise the capital needed to maintain your public listing.
•Have you kept adequate financial records? Regardless of the method you choose to take your company public, the process will require you to have audited historical financial statements for up to three years.
•Do you have quality board members that can meet corporate governance guidelines? Regulators expect board members with good track records in operating businesses and raising capital, with expertise in your industry and the countries in which you operate.
•Are you prepared for the public scrutiny that comes with being public? Stock exchanges and securities regulators impose many requirements on public companies related to public disclosure and financial reporting. You must keep the market apprised of all material information about your company, disclosing particulars of executive compensation and filing copies of all significant contracts, which could include contracts with customers and suppliers.
•Do you have adequate personnel to manage disclosure obligations? Management will have to devote substantial amounts of time to ensure that the company is meeting the requirements described above, which can take away from the time they have to run the company's day-to-day operations.
David Frost: Partner, McCarthy Tétrault LLP
Whether or not to go public is one of the most critical decisions a company can make. Your company must consider whether it is ready to undertake the process of becoming a public company and the realities of being a public company.
Some factors to consider:
•Choose your path carefully. There are two traditional ways to take a company public. An initial public offering involves the sale of shares to the public. In a reverse takeover, the company acquires an existing public company. Both have advantages and disadvantages.
•Have experienced, strong management. Management must possess sufficient experience to carry out the process and must be willing and able to assume the responsibilities involved. The board of directors plays a significant role in both the management of a public company and its public image. Changes to the board are often required and additions can strengthen the independence and expertise of the board.
•Prepare a solid framework. A company must consider whether its existing corporate, capital and governance structures are appropriate for a public company, as well as checking corporate records and contracts.
•Conduct a systems check. Internal systems and procedures should be capable of supporting the demands of the going-public process and the requirements to report reliable financial information to investors. Accounting issues must be addressed early and records must be examined to prepare for financial disclosure.
•Get the right experts involved. The right choice of investment bank, legal counsel and auditor is critical. Advisers should have a solid reputation in the financial community and in the industry of the company. A company must consider both an expert's track record and familiarity with applicable legal and stock exchange requirements. Enlist help early to ensure success.