The Challenges of Taking a Company PublicBy Guillermo Cruz | Wed, 05/04/2022 - 09:00
In 2021, the US saw the highest number of Initial Public Offerings (IPOs) in the last 20 years. According to data from Statista, 2021 was the year for IPOs, mainly due to the large influence of the significant rise in the number of Special Purpose Acquisition Companies (SPACs) that went public. In 2021, there were 951 IPOs in the US, more than twice that in the previous year.
Currently, there is considerable growth in venture capital investment in innovative companies that offer investors the potential for considerable returns. The IPO of a company has the capacity to propel its growth, although the challenges to carrying it out are not minor. On the contrary, it is a path that few companies, particularly those coming out of emerging markets such as Latin America, can even begin.
Compliance and Regulatory Understanding
The first step for a company considering an IPO is to fully understand the regulatory framework in which the company must navigate. This includes an exhaustive analysis of the competition and commercial rules in the US to understand whether the company can comply with those rules not only during the IPO process but, also, throughout the subsequent operation once its financial assets are in the hands of the stock market.
The challenge of taking a company public, especially in the US, is knowing that the levels of competition will be greater than before the IPO. By seeking more capital from a variety of sources, the company will find that only the best will excel in the stock market. For this reason, they must offer the public solidity and certainty so that investors know that their money is a solid bet.
To achieve this, the company must have unparalleled administrative muscle. It must follow basic corporate governance principles long before they become an obligation: transparency, a board of directors with clear rules, and proven structure and operational protocols. In other words, a company seeking to go public must have a strong culture of auditing and accountability.
Opportunities and Performance
“At the end of the day, we are seeing that US investors are looking for better opportunities and better returns. There is an ideal environment there for the development of industries with growth potential. It's a golden opportunity for any Latin American company looking to take the step to the next level. Of course, it is a huge challenge, but it is one that can bring benefits of the same magnitude," says Jerónimo Peralta, Managing Partner of Maquia Capital.
To exploit the benefits of an IPO without having to navigate the bureaucracy involved, many startups have found the SPAC model to be an ideal vehicle.
According to Nasdaq figures, in 2021 this model had significant growth, with 613 companies of this type listed, moving US$145 billion in the US. In this sense, they have become ideal tools to overcome the challenge of taking a company public.