Taking a company public during the best of times can be a long and intense process that requires constant attention, dedication of time, and the proper allocation of resources. Doing the same thing during a time of volatility in the public markets will add extra work and uncertainty to just about every aspect of the journey from private to public company.
Depending on the level of volatility, a company can decide to carry on with the process, delay the process for a short period of time, postpone the offering indefinitely, or cancel the offering altogether. The key to making the best decision among these choices is make assessments on the major factors that can influence the success or failure of the offering.
These factors include:
- The nature of the volatility – Volatility can occur for many reasons, some which may directly affect an initial public offering and others which may be due to general market conditions. Volatility related to problems in associated companies or industries would carry bigger negative implications than market-wide uncertainties.
- Whether the current volatility is related to short or long term conditions – Volatility can come from situations where either a resolution will be found in the short term (for example, a debt ceiling vote) or one isn’t likely to occur for some time. An example of a long term issue would be a slowdown in the economy that could take months or years to resolve, for example.
- The structure of the offering – The number of shares that will be included in the IPO can have a direct influence on the success or failure of the offering. The Facebook IPO is a prime example of an offering where so many shares were sold in the offering that there was no demand for them once they started trading publicly. Any company doing a relatively large share offering in rough markets should at least contemplate the idea of reducing the shares that are going to trade publicly to ensure after market demand for shares.
These are just a handful of the factors to consider but if these three issues are weighing against your offering, be careful. Choosing the best option for an IPO is always a matter of timing. If current conditions are giving you some concern, having an experienced team such as the one led by Dmitrij Harder at Solvo Group assess the above mentioned factors can define the best action to take regarding your shareholders and your company.