02: Reasons for floating

A stock market flotation is a means of:

• Attracting new investors and raising finance.
• Enabling existing shareholders and venture capitalists to realise a return.
• Increasing your company’s profile.
• Attracting customers, employees and business partners.
• Motivating your employees, especially when issuing them with shares.
• Exiting (or part exiting) a business in the case of owner-managers.

The key to whether your company will be suitable for flotation is not its size but whether it will be able to provide a rate of return that private investors will be looking for. Investors are only likely to be interested in buying shares in a small unknown company if it has robust enough future performance prospects to justify the risk.

If your company cannot deliver the necessary growth, and you are considering flotation merely as a means for the owner-manager to make an exit, then a trade sale may be a better option.

Similarly, if the company is just looking to raise finance, other options such as venture capital and bank loans may be more appropriate.