Looking at an IPO as a funding option.
An IPO, which stands for initial public offering, is the process whereby a privately-owned company offers shares to the public for the first time via a public market.
A company could choose to IPO for a number of reasons, the primary one being to raise funds to grow the business. Other reasons include enhancing its public profile amongst investors, competitors customers and workforce, to facilitate the owner’s exit, and to enable staff share incentive schemes.
Raising capital, be it internally or externally is one of the first important steps to take when looking to grow and scale business operations. In the past, many Irish companies have traditionally opted to raise funds via bank debt, shareholder funding or via private equity funds rather than going down the route of an IPO. “Not taking an IPO into consideration when looking to expand can have many consequences, one of which is selling too early; paying down the debt by way of partial or whole trade sale rather than looking to the public markets for funding” says Lorcan Colclough, Partner, Mazars Ireland.
Ireland fosters a special culture for entrepreneurial businesses, particularly in the technology sector. The ecosystem here has gone from strength to strength, but very few Irish companies on the scaling journey are looking to the public markets to support their expansion. The introduction of the IPO Ready Programme, facilitated by Enterprise Ireland and Euronext Dublin, formerly known as the Irish Stock Exchange, aims to support Irish companies embarking on their IPO journey in the next five years and an important step in Ireland to encourage more Irish companies to become listed be it at home or abroad.
Irish companies have a number of exchanges to choose from when deciding to embark on the IPO journey. Unfortunately, the Irish stock market is relatively small in comparison to its European counterparts. Euronext Dublin has had very limited IPO activity in the last two years and are yet to have a new equity listing in 2019. In comparison, the Swedish growth market exchange, Nasdaq First North, has seen 12 IPOs since the 1 January 2019 and 51 during 2018, excluding the activity of the main market Nasdaq Nordic.
A main benefit of deciding to list on a growth market stock exchange such as Nasdaq First North is the access to permanent capital which does not carry any repayment burdens. Another key advantage is the ability to use it as a stepping stone before entering a main market, where the rules are far more extensive. This allows for senior management to keep focus on the business rather than on restrictive reporting requirements. It also sends future potential investors a signal of ambition for the company, giving visibility of the company to these investors by being associated with a creditable brand. Finally, and perhaps most significantly, it enables current stakeholders inclusive of founders and staff to realise the value of the business they have worked so hard to create.
On the downside, being a listed company will come with more bureaucratic restraints. Having the correct team both internal to the company and external advisors is paramount during the IPO process and continual reporting requirements. However, with the right team supporting the business the rigour that the public market brings can also be of benefit as it often results in a more refined company structure which aids in preparation for the next stage in the growth story.
One such company is Zutec, a leading Irish construction software company, which in 2018 was the first Irish company to successfully IPO on the aforementioned Nasdaq First North in Sweden. Zutec provide software solutions and expert services to assist the Construction, Engineering & Facilities Management Industries. Its listing on Nasdaq First North marks what is expected to be the first of many Irish companies to follow suit.
Supporting Zutec’s journey was Mazars, an internationally integrated accountancy and advisory firm. Mazars Ireland who held a long-standing relationship with the company; providing tax and audit services, engaged with their Swedish counterpart to provide a smooth transition during the process.
Having prior capital markets experience in the technology sector combined with Mazars' international reach, particularly in Sweden, meant Zutec was fully supported both in Ireland where their headquarters remain and in Sweden where the IPO was taking place.
Speaking of their experience at the time, Conor O’Brien, Director at Zutec says: “We believe the IPO on the Nasdaq First North stock exchange will enable the company to continue to grow at an accelerated rate and expand into further markets such as Scandinavia and North America. We would like to thank Mazars in Ireland and Sweden for the advice and support given during this process.”
The decision to IPO is significant and takes time to prepare and execute successfully. Like all funding methods, the due diligence and regulatory filings processes is the most laborious stage of an IPO, requiring significant legal and accounting support. The first important step is to find credible advisers and accountants that can be trusted to guide the company from the preparation stage all the way through to the post listing stage.
Apart from the obvious due diligence burden involved, the company must begin to operate as a public company which can often mean the restructure of shareholdings, boards and management teams; something itself takes a lot of time and planning.
“The decision to raise funding, be it an IPO or otherwise, is a very important one and marks a pivotal time in a company’s lifecycle,” says Colclough. “The time these types of processes take can sometimes be underestimated but it’s very encouraging to see companies such as Zutec taking their decision to IPO to Nasdaq First North”.
This article first appeared in Sunday Business Post on the 2nd June 2019.