To IPO or not to IPO: why the public markets are not just for the likes of Spotify

Spotify is an exciting company and the chosen source, by many, for great music. Having joined the stock market in New York earlier this month its market capitalisation shot up to $30bn at one point. Not bad for a company that has never made a profit and faces fierce competition. Even at that price it is only the third largest technology flotation, trailing Facebook ($81bn) and China’s online retailer Alibaba (an eye-watering $169bn). With all the media coverage given to these spectacular floats you could be forgiven for thinking that an initial public offering is just for mega companies, but you might be surprised to learn that the public markets are just as welcoming to far more modest companies.

In London, the best-known markets are the main market of the London Stock Exchange (LSE) and AIM. The main market is split into four segments, but the most commonly used are the premium segment, which houses many of the world’s largest companies, and the standard segment, which is subject to EU minimum standards. All shares or debt securities on the main market are admitted to the Official List which is maintained by the UK Listing Authority (which is in fact the Financial Conduct Authority wearing a different hat) and this is why companies are often said to have listed.

AIM was designed for smaller or growing companies, but as it has matured it has found itself more at home with largely companies, and the costs of admission to AIM are fairly steep. By contrast, more and more companies are looking to the standard segment of the main market. The barriers to entry here are quite modest. A company only needs a market capitalisation of £700,000 and while a company with a standard listing must comply with some of the Listing Rules these are quite light touch in practice. The costs can also be significantly less than an AIM listing.

There is a process to coming to market which is time consuming. Good guidance from your advisers is always crucial but once on the market the advantages are many, including increased profile and liquidity. There is a sense of having “arrived” and customers, suppliers and employees recognise that a listed company has an additional badge of quality. Raising further money on the market as the company expands is also much simpler and quicker once listed.

So what kind of company should be thinking of floating?

In terms of sectors, the markets are open to an array of entrants but what companies normally have in common is a good story, the main elements of which are a good product, a growing market, stable cashflow and strong management. Much like Spotify in fact. That said, a company can be much smaller and still rub shoulders with the giants, proving their worth and trustworthiness in a competitive modern environment. And a listing might just be the ideal way to do it!