Private companies have a number of very significant advantages when they become publicly traded, including:
Raising equity and debt financing. Public companies can tap into a larger pool of potential investment capital. Most investors prefer investing in public companies because they provide regular financial statements, update shareholders on material events and offer higher levels of investment liquidity with very low transaction cost.
Use of stock option plans to attract, retain and reward employees. Public companies can offer management, key personnel and other employees shares and stock options, which are incredibly effective at attracting, retaining and rewarding key employees and partners.
Easier to complete acquisitions. Public companies are able to complete acquisitions more easily since they can use stock in lieu of cash consideration, can raise debt or equity financing quickly, can close acquisitions faster and often have a higher level of credibility in the eye of target company management and their investors.
Improved industry reputation. Public companies and their key management tend to secure more media coverage for press release and interviews and are generally viewed as being more credible participants in their industry.
Increased shareholder liquidity. One of the main reasons private companies seek a public listing is to provide their existing and future shareholders with a market by which they can sell, or buy, shares.
Ability to create meaningful long-term wealth. The main reason private companies go public is to create significant long-term wealth for their investors and management. Public companies are typically valued at more than twice their own private company valuation. Management teams who understand that being publicly listed can be a fantastic tool to raise capital, recruit, retain and reward key talent, complete acquisitions and gain more industry attention; are typically best at maximizing shareholder value and creating significant long-term wealth.
Reduced business risk. Business risk is reduced since public companies can more quickly and easily raise capital, complete trans-formative business transactions and recruit top talent, even when plans haven’t developed as originally anticipated whereas this often isn’t possible as a private company.