A listing on the JSE may be just what your company needs to take it to the next level, whether this entails accessing capital for growth, profile building or realising investment for its shareholders. Whatever the reason, as the economic climate improves, more companies will look seriously at the possibility of listing.
The JSE ended 2012 with eight new listings on its Main Board and four listings on the AltX. The listings trend last year has been appropriate given current market conditions. As has been the goal for some time now, the JSE is looking to attract quality listings — companies that list for the right reasons and which find strategic value in listing their businesses.
While the number of new listings is obviously closely tied to economic conditions, the decision to list should meet the long-term objectives of the firm rather than benefiting from a day’s buoyant conditions.
Markets are both cyclical and changeable and share prices move accordingly. Companies looking to list need to take this into account and have a long-term horizon in mind. The decision to list demands an in-depth understanding of a company’s management, resources, stage of development, long-term future goals and strategy.
When listing’s a bad idea
There are instances where listing is a clear no go. Listing on the JSE is not an escape route for a company in trouble looking to cash out, nor is it an opportunity for a company without clear direction seeking growth.
The JSE therefore remains strict, looking to talk to solid companies with good track records and proven management. As a regulator, the JSE takes investor protection very seriously, and it’s therefore vital that it uses its judgement to prevent inappropriate listings to avoid future problems for both the company concerned and its investors.
On some occasions a company may have both a good track record and prospects but nevertheless be poorly suited to being a listed entity. Highly entrepreneurial firms, for example, may battle with giving up some autonomy or resist having to account for decisions to a larger audience.
The pros and cons of listing must be carefully weighed up. The benefits include gaining access to equity capital rather than debt finance, enhancing a company’s status, and enabling companies to use their shares to fund acquisitions. In addition, companies enjoy greater exposure. Finally, listing could enable a company to attract and maintain good employees and may also enhance dealings with banks, suppliers, distributors and customers.
Taking the first steps
When deciding to list your company you need to consider the following:
- Where is your business plan taking the company?
- What are your likely capital requirements?
- How strong is your competitive position and how can it be maintained and strengthened?
- What is the quality and experience of the management team?
- Are all members of the management team working to the same agenda?
- What outside perspectives, such as non-executive directors, does the board have access to?
- What will attract investors to the company and are you committed to spending time communicating with these shareholders?
The process of preparing for and seeing through a listing is demanding. Inevitably, as this process places additional pressure on the management team involved, if cracks are ever going to appear now will be the time. It is crucial to ensure that the board is unified behind whatever collective decisions have been taken and that all members are able to explain and promote the company’s plans.
It’s therefore not surprising that some companies considering a listing decide against it the first time but return to the idea later when they are better prepared.
The actual listing, however, is only the start of operating in a listed environment. There are a number of considerations to take into account when considering listing on the exchange. These include:
- A reduction of control. The sale of equity would involve ceding a degree of management control to outside shareholders, especially for significant acquisitions.
- Disclosure requirements and ongoing reporting. A much higher degree of reporting and disclosure is required, which may require additional investment in management systems, resources and more rigorous application of compliance controls.
- Loss of privacy. Greater accountability to outside shareholders means that directors and management lose much of the privacy and autonomy they previously enjoyed while running an unlisted company. The company’s heightened profile means any under-performance is scrutinised which may have a direct impact on the share price.
- Costs and fees. The overall costs of listing and maintaining a listing must be considered and understood.
- Management time. The listing process and other duties may require time.
- Additional constraints. Directors’ responsibilities and restrictions are complex. They include a disclosure of total remuneration packages, restrictions on share dealing and the communication of price sensitive information — whether this information is to have a positive or negative impact on the share price.
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