Cost and disclosure top considerations for going public

RSM Richter cautions private companies not to rush into an IPO

TORONTO, Jan. 19 /CNW/ - As the corporate world awakens from the dark days of the recession, private companies are re-establishing a market for public conversions. Although the prospect of being a publicly traded company is seductive, companies need to stop and consider the true cost of conversion which goes beyond cash, to disclosure, resources and changes in reporting standards.

"Being a public company is drastically different from operating privately. The dollar cost is only one aspect to take into account," said David Fabian, Partner at RSM Richter. "It is critical for companies to avoid rushing into the decision and evaluate if they're in a position to become a publicly traded company."

It is in a private company's best interest to investigate and consider the true cost of conversion. A trusted advisor should highlight the many pitfalls before a company embarks on its journey to an IPO.

Top considerations for private companies looking to go public:

In business, cash is always king
It is vital for private companies to understand both the transition and annual costs a private company may incur as it converts to a public filer. The seduction of external investment needs to be weighed carefully against the many and often unknown associated costs. A comprehensive review will prevent drowning in expensive, uncharted waters.

When you're public, nothing is private
When a company is public, it is responsible for disclosing operational information, including senior management's compensation and potentially confidential industry and product information. As a private company, information disclosure is not required by regulators. This is a drastic shift for a private company that may expose it to scrutiny and offer trade secrets to competitors.

Operational flexibility stiffens
After going public, a company will need to communicate information to analysts, regulators, auditors and the general public on a regular basis. For example, as a public company, an acquisition needs to be announced earlier than the deal closing to comply with regulatory requirements. Private companies, on the other hand, have flexibility; their obligation is to disclose information on acquisitions once the deal is complete. 

While cash, disclosure and flexibility are major considerations, there are others just as significant to include in the assessment process. IFRS standards came into effect for public companies on January 1, 2011 and the conversion for private companies will be complex and costly. Due diligence must be given to the sizeable investment in time, services and resources consumed during a conversion, as well as how their shares will perform in the market.

"The economists' and analysts' appetite for a company's shares is important," said Fabian. "Many small-cap companies are not actively traded and therefore can't use their shares as currency when contemplating expansion via acquisition. If there is no confidence in how they'll perform, public conversion can be crippling."

About RSM Richter and RSM Richter Chamberland
Entrepreneurs have been the focus of our firm since it was founded in 1926. Today, RSM Richter, known as RSM Richter Chamberland in Montreal, is the ninth largest independent accounting, business advisory and consulting firm in Canada. RSM Richter offers a full range of advisory and consulting services, supported by in-depth industry knowledge and national and international experience. Strategically located in Calgary, Toronto and Montreal, RSM Richter and RSM Richter Chamberland are part of a strong international affiliation covering all major markets around the globe. RSM International is the 6th largest network of independent accounting and consulting firms in the world operating from 736 offices in 76 countries. For more information, please visit www.rsmrichter.com.

SOURCE RSM Richter

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For further information or to organize an interview:

Melissa Prince
Veritas Communications
P - 416-482-2669
C - 416-704-8733
prince@veritascanada.com

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