Deciding to float or sell?

The IPO and selling processes


The preparation for an IPO or formal sale is much the same in the early stages. On both routes you are looking at prospective buyers – be it potential trade buyers or private equity, or on the capital market side, public market institutions and they are doing due diligence to understand and value the business and verify the statements that you’re making.


Are we seeing a trend of entrepreneurs wanting to leave their choice until a later stage? Well, yes and no.


In truth, it depends what that entrepreneur is looking for. Some have reached the stage of running a business for 15 or 20 years and just want to retire. They’re looking to find a trade buyer or private equity firm that wants either 100% or a large majority of their business. On the public market side, it tends to be geared towards companies where entrepreneurs are looking to continue a growth journey and further realise their ambitions.


Decisions, decisions


Which path do you choose? Short answer, it depends. We tend to know quite early on which route someone will take because ultimately the entrepreneur knows what they are trying to achieve.


We know that a lot more businesses get sold than IPO. That’s just a natural function of where people get to in the lifecycle of their business, but it also comes down to the management team.


Ultimately a great management team is integral for an IPO. They’ve got to want to embrace what the public markets mean, which is generally developing a growth strategy, along with further equity delivery.


Conversely, management are not necessarily a driver of whether a business can get sold (ultimately, a buyer can inject new management, but the IPO market won’t). We find that the public markets are ideally suited to growth companies that will continue to require working capital to expand but that businesses in steady-state, low, single-digit growth percentages tend to be more attractive to a straight sale, often as a result of the higher leverage ratios that can be applied in private.


Your choice of whether to IPO or sell depends on your business prospects, where your management team is, and where you are as a business leader, in terms of the lifecycle of your company.


Dual Track is a finnCap service offering that gives entrepreneurs more options when it comes to selling a business. At its heart, it combines two processes – preparing a company for sale and an IPO, which are run in tandem. It’s not a new thing, per se, but since finnCap acquired Cavendish Corporate Finance in December 2019, we have the unique ability to offer equity capital markets experts and a market leading sell side team under one roof to give company leaders the ability to explore a wider variety of options to create value.


Dual Track should not be thought of as two separate processes, but rather the best method of getting to the key deliverable for an entrepreneur or business owner, which is the sale of their business, at the best possible price, to an owner that is supportive of the business in the long term.


Ambition Nation Summit on the 2nd October will explore what it takes to make those big, tack-changing choices that can make or break business success. Leading CEO’s, business leaders and experts from across financial growth services share their insights on key decisions that continues to drive their business success, while the inspirational keynote address comes courtesy of polar explorer Ben Saunders, and how he makes choices that literally mean life or death.


By Sam Smith, CEO of finnCap Stockbrokers

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