Ambitious business owners often aspire to take their companies public through an initial public offering (IPO). In Ireland, many companies have achieved great success by following this path, including CRH, Flutter (formerly Paddy Power), the Kerry Group, Kingspan, Glanbia, and numerous others. The primary motivation for seeking a public listing is access to capital. Piers Coombs, head of the Goodbody London office, explains that going public provides permanent equity capital and a foundation for raising capital for growth and acquisitions. Additionally, there are subsidiary benefits such as liquidity for pre-IPO shareholders, the ability to incentivize staff through stock options, increased visibility for the business, and potentially cheaper debt from lending banks due to the higher quality covenant of being listed.
Ian Whitefoot, a partner at Deloitte, agrees that access to liquid pools of capital is the main reason for going public. He also highlights the cash-out opportunity for existing shareholders, although this is not necessarily the most important factor. Whitefoot notes that existing shareholders typically cash out a portion of their holdings, usually between 10% and 25%. New investors are typically hesitant to invest in companies where existing shareholders are cashing out a significant portion of their holdings. Another benefit of going public is the ability to incentivize employees through innovative share compensation structures, which can drive dynamism in the business.
Coombs emphasizes that a wide variety of companies can benefit from going public. The stock exchange is a broad market, and almost any company is suitable for listing. While some companies may face barriers due to environmental, social, or governance concerns, public markets are primarily price-discovery mechanisms. If the price is right, investors will seize the opportunity to make good returns. Companies that demonstrate a clear trajectory for sustainable growth and can articulate how additional capital raised at IPO will accelerate that growth are likely to be seen as higher quality and attract more attention and better valuation multiples.
Size does matter to some extent. Coombs explains that there is a relatively small number of investors who target companies with values below €100 million. However, this does not mean that smaller companies should avoid going public. Many FTSE250 companies had a smaller market capitalization at the time of their IPOs 10 years ago. Liquidity is an important consideration for investors, and companies with a market capitalization and a free float (the proportion of shares available for trading) of over €250 million will attract a wider group of institutional investors.
Whitefoot believes that several Irish companies are ready for an IPO. The Irish market is witnessing a growing population of companies that are suitable for going public. These companies have reached a scale where moving between Irish private-equity investors is no longer a viable option. There are various markets to choose from, ranging from listing on the Nasdaq in the US to the Euronext exchange. However, companies and their owners must be prepared for changes in legal requirements and their operating environment. The growth and equity story that companies present to investors is fundamental to an IPO. Investors expect a certain level of maturity and confidence that the company will deliver on its promises. Companies need a track record to demonstrate their ability to do so. Owners must also have the capacity to fulfill the equity story without compliance becoming an overwhelming burden. Running a public company requires a different executive team with specific skills and abilities.
Owners must also be prepared for the higher level of transparency and scrutiny that comes with being a public company. Maintaining the confidence of investors throughout the journey is crucial. Management teams may be surprised by the wider population of people who have opinions on how the business should be run, and activist investors can make executives’ lives difficult. Therefore, significant time and resources must be dedicated to investor relations.
However, Coombs does not believe that these factors should deter companies from pursuing a stock market listing. Being a public company requires a high level of transparency in terms of financial reporting and presenting the investment case and business model to investors. Some management teams and owners have concerns about providing competitors with information that they, as private companies, are not obligated to disclose. However, the thousands of successfully listed companies with long track records of growth in highly competitive sectors suggest that these concerns have not held them back.