Why companies should stay unlisted longer

June 08, 2022

|

By Gavin Solomon

When flourishing companies think about their future, an Initial Public Offering (IPO) usually isn’t too far down the track.

After all, traditionally an IPO solves two fundamental problems growing companies face: it frees up liquidity for shareholders, employees and founders, and helps businesses get new capital to realise their growth plans.

However, going public too early opens companies up to numerous potential problems. Suddenly, they go from running their own show to having to face the continuous scrutiny of regulators, which is both time-consuming and costly at both Board and management levels. If a company’s financial and legal documents aren’t continuously pristine, this can also expose the company to substantial risk.

Post-IPO, the company’s founders usually cede control to third-party shareholders, which means it’s important to bed down strategic foundations well before inviting these new owners to the party.

There’s also the risk of not raising enough capital, which has implications for corporate reputation and future market performance. However, listed companies do have the option to exit the public market if they see greater upside by moving back to being private.

From what we’ve observed, companies are increasingly paying attention to these risks and realising that going public too early can substantially slow their growth trajectory. The days of companies listing in their first few years are behind us, with many now waiting up to 15 years before their IPO. However, that doesn’t solve the liquidity problem, which can cause many great companies to lose talent to more liquid competitors. That’s where PrimaryMarkets steps in. 

In addition, worldwide private/unlisted companies now raise more than triple than what companies on listed markets do. 

The best of both worlds

We’re well aware that a lack of liquidity can stifle growing companies, which is why many businesses turn to stock exchanges prematurely.

We’ve created another solution, which helps unlisted companies and their shareholders find buyers and sellers, get access to liquidity, and access new capital raises. Through us, companies achieve those goals while remaining private – and reduce/eliminate some of the regulatory and legal costs public companies face.

Instead of spending their time on compliance, making public announcements, and continuous disclosure, unlisted companies can fine-tune their strategy and continue to grow to achieve unicorn status.

A great example of this phenomenon is gaming company Animoca Brands, a client of PrimaryMarkets. Animoca – now a world leader in NFTs – was listed on the ASX up to March 2020, with a then market cap of close to $140 million.

Whilst Animoca’s underlying business was strong, it struggled with the rigorous demands of the ASX, including market disclosures. As a result, the company chose to de-list and come onto the PrimaryMarkets platform in July 2020.

Not long after, Animoca achieved unicorn status and it now has a market cap of $6 billion. PrimaryMarkets manages its share trading and has overseen its price rising from $0.07 to more than $4.50. As a private company trading on PrimaryMarkets, it has also been somewhat insulated from the technology dive in the US, which significantly brought down the value of companies such as Twitter, Netflix, and Facebook. In the private space, there are at times fewer buyers and sellers, which means unlisted companies’ value doesn’t suffer as much from “day trading by mum and dad investors” market sentiment. 

Like Animoca, your company could thrive in a private universe. The key is to control your own timing. If you need liquidity for shareholders before listing, we’re here to help.