Initial Public Offering (IPO) is an important milestone in a company’s life as it marks its transition from a privately held company to a publicly-traded company, allowing retail investors like you and me to own shares in the company. If you are interested in the equity markets or investment banking, then you would be interested in learning more about how companies IPO in Malaysia.
Imagine this. You're an entrepreneur needing more capital to fuel your expansion dreams. After several rounds of the previous fundraising, you think it’s time to take it public because your company has a good track record and strong equity story, and perhaps your friendly neighbourhood investment banker’s sales pitch on how your company might be the next Grab... all just sounds too tempting.
When a company reaches a level of maturity, the shareholders might consider going public to raise money from the public. In addition to raising capital, an IPO would also allow existing shareholders to exit some or all of their stake in the company, enable employees with stock-based compensation to enjoy liquid equity participation, and create acquisition currency for stock-based M&A. Last but not least, some entrepreneurs regard an IPO as a milestone, a symbol of success, and therefore it makes perfect sense for them to pursue one.
There is a long process before your company can start trading on the stock exchange. Generally, an IPO will take around 30 weeks to complete following the appointment of the financial advisors, and there are 2 major workstreams, namely legal and marketing. Therefore, you will need to appoint a legal advisor (Lawyer) and a financial advisor to assist you in marketing your company (Banker). You can refer to the diagram below.
Before you can even submit the filings to the Securities Commission (SC), you need to make sure that your company is in the right shape. This would include things like altering your corporate structure to ensure that it complies with requirements and appointing independent directors on your board. After all the organizational changes are made, then you submit your filings and prospectus to the SC, and they will share it publicly to receive feedback. Once your prospectus is approved, you can officially release your prospectus to the public and start marketing to potential investors.
Usually, the most exciting part of the marketing process is the roadshow where executives from the listing company meet potential investors to pitch their company. In the pre-COVID world before Zoom calls took over, it used to be a 4-10 day event where the executives travel around the world to meet investors in all the major financial hubs.
Well, maybe for the first few investor meetings, as you repeat the same story about your company for the 4864685th time, the process starts to feel dry for you. Don’t even mention your poor CFO who has to listen to your same story for the 4864685th time and silently wait to be called upon if potential investors have a question about that one line item in the balance sheet. After the 10th call or so, you grow weary because you keep receiving the same questions from different investors, and your mind starts wandering away as you mechanically rehearse the answer that your banker friend taught you.
After a grueling 7~ 8 months-process, your company is finally public! Now’s the time to grab a Mojito and relax right?
Not so fast, perhaps.
Going public does give your company a lot of advantages, but it also has its fair share of disadvantages, the most notable one being public scrutiny. Investors in public markets tend to chase results by the quarter, and the company has to consistently release filings to satisfy disclosure requirements. Management might be pressured to chase short-term, quarterly targets instead of focusing on the long-term strategy of the company.
So you can grab your Mojito, or maybe start preparing for next quarter’s filing.