Evaluating IPO’s and Alternative ways of raising finance
The topic presented by the finance director is a popular question for companies in the modern era of business. The IPO was once the ultimate mark of success, it was the end goal for any small company. The article the finance director has read talks about the decline in the number of IPOs over the years and suggests that from a companys standpoint, staying private may provide a simpler and more desirable to obtain capital. The task for me is to investigate the problems of IPOs and its alternatives, and then present my findings to the board so they can make the right choice for the company to further its expansion. From my initial research it is clear there are several issues that need further research. I have identified 3 key areas that need investigation. The first of which will be looking at the successes and failings of companies that have gone public in recent years and the reasons for these results. Secondly, I will provide research the possible reasons for the clear decline in the number of IPOs over the years. Lastly, I will provide a detailed analysis of the possible alternatives of raising finance to the company.
A clear cause for concern is the success of IPOs in recent years. I will present information and data about the performance of companies that have gone public in recent years. From my initial research the majority of companies going public have largely underperformed, and it is important to investigate the possible reasons for the general failings of these companies. There are several arguments as to why this is presented in different articles e.g. the overall performance of the economy; the performance of stocks as a whole and an argument about the market growing up (presented in the financial times)
The second key issue is that the number of IPOs has significantly decreased in between 1999 and recent years. I will investigate the possible reasons for this decrease. Many of the points may link to points made to the previous section. There are a few common arguments in this space; many experts believe this is due to the post-financial crisis regulations discouraging the use of IPOs; some believe that there is less need for money than there used to be in many industries so capital needs have become less intensive; as well as IPOs being used to give investors and early stage employees a pay day is less important than it used to be.
Lastly, alternative ways of raising finance have become more popular. I will provide an analysis of the different methods available to companies in ther modern era and an explanation of the possible reasons they may be being used more as opposed to IPOs.
