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20 Feb, 2018

5 Alternatives To IPOs

5 Alternatives To IPOs

By now you’ve done your research and decided that an IPO is the next step in your company’s growth journey. But don’t forget about alternate routes and dual-track approaches, such as a multi-track approach of both an IPO and an M&A transaction. As with any trip, it’s good to have a backup route.

Not every company that pursues an IPO ends up going public, at least initially. Therefore you need to keep your options open. Your alternatives may include any combination of the following:

  1. Sale to a strategic buyer through the M&A market
  2. Sale to a private equity firm
  3. Private placement, often as a pre-IPO step
  4. Joint ventures and strategic alliances
  5. Refinancing to release funds for partial exit

Before you settle on the IPO route, explore some options that could serve as stepping stones or an alternative to a public listing.

The strategic sale route provides up-front liquidity, shareholder value and support for growth. The potential for an IPO affords strong negotiation leverage. And private equity can offer an alternative for growth companies that are not operationally ready to enter the public capital markets. Consider the sale type and structural implications on liquidity.

The private placement path is money invested — usually by institutional investors in the form of stocks and sometimes bonds. Typically, this is appropriate for a small growing company looking to fund growth and expansion, and it often involves commitment to an IPO or liquidity event within a specific time frame. Private placement is an especially effective tool for raising second- and third-round capital.

On the partnership/joint venture or alliance road, you can raise capital and keep some control, using the arrangement as a bridge to a sale or IPO. You could integrate products and customers while combining complementary technologies. Make special considerations for licensing, distribution/supply, manufacturing, employee and other relationship agreements.

Along the refinancing route, seriously consider your debt service capacity and creditworthiness. You will have to become an SEC reporting company.

All paths considered, going straight to an IPO may still be your favored approach. After all, you could see an upside in future opportunities and maximize intrinsic value as an independently managed business. An IPO helps you retain and motivate talent and management, while increasing credibility with potential customers, suppliers and employees. And of course, you’d have a liquid currency.

Issues to consider include your window of access, along with the broad range of new public company expectations. You’ll want to weigh the pros and cons of a near-term IPO versus allowing the business to continue to mature and grow

So what’s on the road ahead for you? Will you evaluate the options on your path to going public?

Read more about M&A: DD Check List, Mandate F. A. Q.

Company Valuation: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8

Some ideas about capital-raising strategies: Bringing Your Company Public, Exploring Alternative Capital-Raising Strategies, Refinancing and Minority Equity as Partial Exit Strategies, 5 Alternatives To IPOs, How to Raise Capital For a Company in Financial Troubles, 7 Private Equity Strategies

M&A forecasts: M&As In 2018, Last Year M&A Review and New Year Outlook, How to Raise Capital For a Company in Financial Troubles


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