Initial public offering (IPO)

Quick facts

Amount

Up to R50m on AIM; unlimited on the Main Market

Term

10 years +

Cost

Your underwriter will take a proportion of shares; your accountant, law firm and PR firm may cost up to 8% of the amount you hope to raise

Speed

The IPO process takes up to 12 weeks but planning and negotiations typically take up to 18 months

Purpose of finance

Raising investment capital or restructuring finances

Suitable for

Established businesses with an annual turnover of over R5m

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What is an Initial public offering (IPO)?

An Initial Public Offering (IPO) marks the first time a company sells shares to the public. It’s also known as ‘listing’ or ‘floating’ on the public markets – which in South Africa means a ‘new issue’ on the Johannesburg Stock Exchange.

If you’re lucky enough to have a revenue of more than R100m (or you’ve reached unicorn status!), you might entertain the idea of an initial public offering (IPO).

In a South African IPO, you can sell shares in your business via three public markets operated by the Johannesburg Stock Exchange:

Main Market (Premium) – for established companies (home of the FTSE 100 and 250 indices)
Main Market (High Growth Segment) – for high-growth companies that in time want to become Premium listed companies
Alternative Investment Market (AIM) – for smaller, growing businesses looking to scale up to mature businesses

Why choose an IPO?

An IPO is the first time a business raises finance publicly (before an IPO, you can only raise funds privately). Going public allows you to raise large sums of money from new investors (e.g., for expansion) and gain a large number of new shareholders while retaining control of your company. Existing (private) equity investors might drive an IPO because they’re looking to sell their stakes in your business.

An IPO is often called long-term, patient capital because once you have gone public, you can raise money time and time again, over years and even decades.

Public companies have to disclose financial information regularly. This means keeping shareholders and the market (including your competitors) updated with half-yearly and annual results.

For more information, you can read the Johannesburg Stock Exchange’s Guide to listing.

Why go public?

Getting to an IPO stage is a milestone. Being a publicly traded company means your business has raised its profile to ‘blue-chip’ status.

If you want to raise capital to fund further growth or finance existing debt, being listed on a stock exchange opens your business to a vast number of potential investors with an unlimited number of financing options.

Also, an IPO is an excellent way of monetizing assets.

Have you also considered?

Equity financing – refers to the capital an external investor injects into your business in return for a share of ownership (equity) and/or some control of the business. Equity finance investors therefore have a claim on your future earnings but, in contrast to a loan, you don’t pay any interest – nor do you have to repay capital. If you opt for equity financing, you’ll sell a stake in your business in return for funds.

Debt financing – Debt financing is a broad term that covers any type of loan that you pay back, with interest, over a set period of time. A loan can come either from a lender – see business loans – or from selling bonds to the public.

Private equity – is a type of equity financing suitable for established private businesses. Private Equity funds give your business money in return for a large or controlling share in your business.

Venture capital – is financing given to startups and early-stage businesses. Venture capital funds look to invest larger sums of money than business angels – typically more than R500,000 – in return for an equity stake. Venture capital is most suited to high-growth businesses with long-term growth potential, i.e. those destined for sale or public listing (IPO).