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
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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