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Considering Going Public

30/09/2010


Becoming a publicly traded company represents a significant achievement for any organization. But while it has many strategic advantages which can accelerate your company’s growth, the process can be complicated, time consuming and risky. Before you jump in, it’s important to get professional advice. Here is a synopsis of important factors to consider.

Some of the benefits include:
  • Access to capital markets and the ability to achieve long-term business goals
  • Shareholder liquidity
  • Wealth creation
  • Greater exposure of the business to customers and suppliers

Challenges of an IPO process

However, the IPO process also has its challenges. As a public company, there is increased disclosure of many aspects of your operations including material contracts and executive compensation, which would also be available to competitors. There are also increased reporting requirements, such as preparing:

  • Annual and quarterly financial statements
  • Management discussion and analysis
  • Annual information forms
  • CEO/CFO certifications on internal controls over financial reporting

Other potential disadvantages include:
  • Increases in corporate income taxes (companies may lose certain tax benefits - i.e. the small business deduction)
  • Ownership dilution
  • Direct costs associated with being a public company

Other factors to consider before going public

Before going public, there are a number of strategic and operational issues to consider:

  1. Status of the company. A requirement of going public is to prepare and file a prospectus. A prospectus is a public offering document, which is intended to ensure that potential investors receive balanced and accurate disclosure related to the securities issued. It assists underwriters in evaluating the level of interest in the securities being offered and is used by potential investors and underwriters to assess the financial strength and the position of the company. Another key objective of the prospectus is to create excitement about the company and maximize the number of shares that will be issued to private and institutional investors. The form and content of the prospectus is governed by National Instrument 41-101, General Prospectus Requirements, including Form 41-101F1, which specifies the contents of a prospectus. Before the prospectus is released, it must be approved by the provincial securities commissions in each province where the securities will be sold. Some of the required disclosures are:
    • An overview of the business, markets, products and services
    • The strategic direction of the company
    • The use of the funds raised through the IPO process
    • The business risks
    Since the prospectus must also include three years of audited financial statements, it’s important to have systems and processes in place that will facilitate the gathering of this information. The goal is to communicate your company’s story and outlook. That’s why it’s important to have a clear vision and focus before going public.
  2. Timing and market conditions. The securities that will be offered for sale will be largely influenced by economic and market factors, such as stock market levels, interest rates, inflation and the industry. The objective is to achieve a balanced price for your company’s stock to create investor confidence.
  3. Management team and corporate governance. A key component of going public is having the right management team in place to help promote the company, execute the strategic plan and ensure compliance with reporting requirements. It is important to assemble a management team that has experience and is well versed with regulatory compliance. An auditing firm can assist with some of the compliance requirements. You will also be required to assemble a board of directors. The board will be responsible for corporate governance and can play a vital role in the IPO process, leveraging their knowledge and experience.
  4. Infrastructure and business processes. Public companies are required by securities legislation to meet continuous reporting requirements. These requirements would include:

    • The annual information form, which must be filed annually within 90 days of the companies’ fiscal year end (TSX-V issuers are exempt from this requirement)
    • An annual audited and quarterly financial statements that must be filed within 90 days of year end and 45 days after quarter end (120 and 60 days, respectively, for TSX-V filers)
    • Management’s discussion and analysis
    • An Information circular
    • Disclosure of material change reports
    • Business acquisition reports
    • CEO/CFO certifications over establishing and maintaining disclosure controls
    • Procedures and internal controls over financial reporting

  5. Cost. There are significant costs when going public and when you become a public company. The most significant initial cost is the underwriters’ commission for marketing the securities, which typically ranges from 6 to 10% (based on the size of the offering). Other costs include legal fees for preparing and reviewing the offering document, audit and accounting services, marketing, printing and securities commissions’ filing fees and listing fees.

How MNP Can Help

At MNP, we have assisted a number of companies through the IPO process and can help you assess whether going public is the right decision for you. If you choose to proceed, our experienced professionals work closely with you to ensure you remain well informed and are prepared at every stage. To find out what MNP can do for you, please contact James Fuerderer, CA, Public Companies Advisor at 403.648.4155 or any member of our Public Companies team.