Greater Company Valuation—the market value of a public company is almost always substantially higher than its private counterpart. According to statistics published by the U.S. Chamber of Commerce and Entrepreneur.com, private companies are typically valued at only four to six times earnings, while public companies are typically valued at multiples greater than twenty times earnings. The obvious result is an immediate and substantial increase in the net worth of its founders and shareholders. We have also seen many companies that were private and about to be purchased, go public to be purchased at a much higher price.
Greater Access to Capital—most investment bankers and funds simply will not invest in private companies. But once public they can invest in your company and, thus, a company’s capital funding alternatives and ability becomes greatly increased. The two greatest factors contributing to this is 1) the liquidity gained by investors and 2) the fact that public companies also are more transparent through public reporting requirements, tends to significantly increase investor confidence, and 3) the prestige and stability associated with being a publicly traded company, coupled with the ability to sell stock to investors below the quoted market price, adds tremendous advantages to a companies ability to attract investors. Often investment bankers and venture capitalists will require that a company is publicly traded before committing funds. A publicly traded company can go to the public markets for capital via a stock or bond issue, and may also convert debt to equity. When your stock has a public trading symbol and quoted stock price, it not only gives you a benchmark value to raise capital against, but also greater visibility such that any potential investor can simply check their favorite quote system or call their broker and get a quote of your company’s stock price. This increased visibility naturally breeds investor confidence.
Cheaper to Raise Capital—because public companies typically have a much higher valuation than their private counterparts, public companies have to sell less stock (ownership) to raise the same amount of money as their private counterpart, and thus realize less ownership dilution,
Ability to Utilize Stock to Make Acquisitions—public company stock can be used to grow through acquisitions/mergers. Making such acquisitions is also usually substantially less expensive and easier when public.
Greater Employee Attraction and Retention—through stock options and estate planning for officers of public companies, they have a big advantage over the same private company in attracting and retaining high quality employees.
Increased Liquidity for the Company Founders, Investors, and Shareholders—stock in a public company is much more liquid than stock in a private company. Liquidity is created for the investors and founders alike. Investors in public companies are much more likely to be able to buy or sell the stock more readily than in private companies. Ownership of stock in a public company may also help the company’s principals to borrow more easily and eliminate personal guarantees. Liquidity can also provide an investor or company founder an exit strategy, and portfolio diversity. Greater liquidity is one of the primary reasons why public companies are typically valued so much more than a private company.
Gives the Founders an Exit/Retirement Strategy—another of the important benefits to going public is that a public market for their stock offers the founders a long term exit strategy that is considerably more viable and likely to result in greater financial freedom than their private counterpart. Public company stock is generally more desirable to use in estate planning for the company principals.
Enhanced Credibility and Prestige—there is no denying that going public gives your company and its founders greater visibility, credibility, clout, and prestige with customers, employees, the press, and the entire financial community.