How private businesses can finance their next lap of growth

Going public

A public listing is a significant milestone — one that takes months or years of preparation. The vital question for many companies is if an IPO is suitable for them.

Preparing for an IPO starts with carefully evaluating its pros and cons and the potential use of proceeds. First and foremost, companies must be clear about the IPO’s purpose for them so that their business strategy and brand story are aligned.

A successful listing can help companies access financing from the public to complete a strategic acquisition, expand into new markets or provide an exit opportunity for private investors. This access to permanent capital is available beyond the initial fundraising. After the IPO, companies can continue to raise funds from the public, such as through equity bonds or public debt offerings.  The company’s listed shares also serve as “currency” to finance future acquisitions.

Going public can also improve how customers, suppliers and employees perceive the brand and business. During the IPO process, companies communicate their brand and business strategies to investors and the broader business community, driving higher visibility and trust with consumers, suppliers and future partners. The potential for an employee stock options program can also help attract and retain talent. 

Timing is a key determinant of the valuation and listing price of the company. However, it is challenging for companies to determine if the equity market conditions will be right to support fair valuation when the company is ready to list. IPO conditions can fluctuate. For example, following the record IPO activity seen in 2021, there was a global slowdown in listings in 2022 and 2023.

The Q3 2024 EY Global IPO Trend report finds signs of cautious optimism in global IPO markets. Indeed, with interest rates easing and companies gearing up for growth, IPO activities in the region are expected to pick up. While many elements, such as macroeconomics, are not within the control of companies, those that are prepared for the window of opportunity are better poised to reap the rewards nimbly.

Selecting the right capital market, stock exchange and listing segment is another key decision. This will determine the regulatory requirements that the listed entity must meet. The majority of issuers list on their domestic exchange due to brand familiarity in the market, which likely brings greater investor appreciation for the listing. However, companies may also seek to list away from home to gain access to new markets or tap into a broader investor pool for potentially higher valuations.

While the benefits of IPOs are clear, listed companies must be prepared for higher transparency and disclosure requirements and the demands of periodic reporting. There is also pressure to manage shareholder expectations and deliver on promises. Some companies may therefore prefer to undertake alternative financing strategies.

Tapping into private equity

Private equity (PE) firms, given their substantial financial resources, have emerged as a compelling option. Unlike traditional bank loans, PE investments do not require regular interest payments, easing the financial burden on the business.

PE firms have evolved over the years to accommodate the needs of various asset classes, be it early-stage ventures, growth businesses, infrastructure and asset-heavy businesses, or those focusing on impact. The tailored pools of capital in private equity enable a more customized solution that better suits the needs of the enterprise.

Over the years, PE firms have accumulated substantial dry powder that is ready for deployment, leading to an increase in PE-backed deal activity in 2024. In the third quarter of this year, PE firms announced 135 significant deals globally.

PE firms stand out for their ability to acquire and build great businesses even in challenging times. They are skilled at creating rapid value and adapting their plans as circumstances change. Their differentiated approach gives them an edge, and their focus on driving returns enables companies to thrive in a competitive market.