Going Public

Process in which a company raises external equity capital by offering its shares to public investors

Going Public is usually considered to be a synonym for initial public offering (IPO).

In the original sense, Going Public refers to the change in a company’s legal form when it is converted from private ownership – e.g., from a partnership, limited liability company – to a stock corporation, thereby giving the public the opportunity to invest in it.

In the meantime, however, Going Public has come to be used in a broader sense, in which it is understood to mean the initial listing of a company’s shares on the stock exchange, also called IPO. An IPO is usually planned and carried out in conjunction with an underwriting bank, or in the case of large new issues, a syndicate. The bookbuilding procedure has become the accepted method of determining the issuing price of a stock.

The primary advantages of Going Public are that it enables the company to raise additional equity capital and gives the original venture capitalists the opportunity to exit. Moreover, it is a form of publicity for the company, and serves to distribute the equity capital among a broader shareholder base. The best time for a company to go public is during a bull market, when it is more likely that all new shares will be bought, as this will lower the cost of capital.

Often, companies that are planning an IPO over the medium term will issue warrant-linked bonds and convertible bonds, which entitle the owner to subscribe to shares issued as part of the future IPO. If the IPO does not take place or is postponed, the bond is usually bought back by the issuer at above par.