Monday, August 15, 2022

Stock Exchange Listing for Businesses Looking to Raise Equity Finance

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Listing your business in the stock market serves to raise long-term equity finance for your company via shares. Stock market listing is mostly unsuitable for smaller businesses, as the process can be costly and time-consuming. Investors also prefer buying shares from companies with secure earnings streams and strong growth prospects. They also expect higher returns from small business investment, often riskier than one made in a large, established company.

Common use of stock exchange listing

Listing in the stock market is typically spearheaded through assistance from a financial institution’s equity capital markets services. It allows businesses to raise capital for growth and consolidation objectives, like new production facilities, overseas market expansion, or paying back a venture capital investor.

Listing in equity capital markets attracts private investors and facilitates cashing in investors. This type of investor includes Enterprise Investment Scheme investors, business angels, and Venture Capital Trust Investors, who prefer to have an exit strategy.

A company may repeatedly list to gain a higher public profile.

Costs

Dipping the equity capital markets through the stock market entails demanding regulatory, legal, financial, and marketing aspects. Professional advisers will need to assist with the process, and their fees include the direct costs of a listing which, based on the size of the business, may reach a six-figure sum.

Costs include the following:

  • Corporate adviser
  • Stockbroker
  • Corporate lawyer
  • Accountant
  • Public relations firm (for large listings).

The corporate advisor assists the company through the process, starting by reviewing whether the company checks all the boxes for listing and then working on tasks to coordinate market entry, such as application submission to join the stock market, assisting in prospectus development, and ensuring that all information contained in it is verified and complete. A corporate adviser will also aid on various issues, including timetable, shares pricing, and marketing strategy. 

Timeframe

Listing in the stock market is often a complex process, which entails preparation. The timeframe may take at least three months to finalize but could easily stretch to one year. It can take business years to prepare for listing. The right equity capital markets advisor can help manage your needs and the entire process as you go along.

The timeframe may also depend on various practical issues that the company and its advisers must resolve, like the correct offer pricing, production of key documents, including the prospectus, completion of due diligence, and other considerations linked to the state of the stock market at the time of a proposed listing.

A good advisor from a reputable financial institution can help speed up the stock listing process and introduce you to equity capital markets. Your advisor will also show samples of financial structures suitable for your trading types based on your business size.

Venture capitalists and business angels may be suitable alternatives if you have a smaller business that’s unsuitable for stock market listing but still needs equity finance for growth funding. If the objective of stock listing is to let owners cash in on their investment, consider a trade sale, where another party purchases the business.

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