Fashion businesses range from small to medium-sized and then to large businesses. Regardless of the size of your fashion business, a time might come when you decide to close business operations. This may be for various reasons including stress, low profits, unavailable resources, the need for time to pursue other interests and so on.
In our business exit strategies series, we have looked at liquidation, acquisition and mergers, and family succession business exit strategies.
While some of these business exit strategies work for all sizes of businesses, some work best for either small or large businesses. The Initial Public Offering (IPO) exit strategy is one that small businesses can try out, but it works best for large companies.
Initial Public Offering (IPO)
An Initial Public Offering (IPO) is the term used to refer to the process a company goes through when it transitions from being a private company to being a public company. It is the first chance the general public has to buy shares from a company and own a portion of that company.
Prior to IPO, the main funders and investors in a business are founders, family, friends, angel investors, venture capitalists and so on. For startup fashion businesses, an IPO might not be the best idea because it means convincing investors and financial analysts that shares in your company are useful to the general company.
If you decide to go with the IPO business exit strategy for your fashion business, you need to understand that your company’s stock will be traded on a stock exchange and subject to market forces. You also need to know that IPO is very risky, because it is difficult to predict how your stocks will do on the market, but it has the potential to pay well at the end of the day.
As a fashion entrepreneur, you might want to use the IPO route if you are expanding your business and need extra capital. This capital can be used to buy additional tools, pay off existing debts, fund research and development, and so on.
Another reason you might want to go public with your company is if you have investors that want to cash in on their earlier investments. It is, however, important to note that you might not be able to sell stocks until after the lock-up period is over.
Examples of public fashion businesses include Inditex, Nike, LVMH, Hermès, Adidas, Christian Dior, and so on.
The IPO Process
The IPO process can be a very long and cumbersome one that lasts for months. According to the Nigerian Stock Exchange, the following steps are required to go public;
- You will need to hire the service of an investment banker or bank to handle the IPO. At this stage, you should have thought through everything and fully understood what you hope to achieve by going public.
- You and everyone involved in the IPO process have to meet to discuss the details of going public, like the amount of capital to be raised and the nature of the public offering to be made.
- Your financial adviser will assist in getting other parties needed to run the IPO successfully e.g. stockbrokers, accountants, auditors, and so on.
- Your stockbroker submits your application to the Nigerian Stock Exchange (NSE) along with all fees required while you apply to the Security and Exchange Commission (SEC) to register shares and receive approval.
- A meeting is set up with all parties involved in the IPO where the offer documents are signed. Afterwards, application forms are distributed to accredited receiving agents.
- After this, an analysis of share requests is prepared, allocations are made, and both the range analysis and allotment schedules are sent to the NSE and SEC.
- Finally, the company submits a general undertaking and a declaration of compliance to the NSE.
The IPO process is then completed.
Advantages of IPO as an Exit Strategy
- The financial gains to be realised can be potentially far greater than that of liquidation and acquisition.
Disadvantages of IPO as an Exit Strategy
- The process is long and costly.
- You will not be able to monetise your shares for six months or more.
- You will spend a lot of your time selling, and not running the company.
As a fashion entrepreneur, for your startup fashion brand to have a good chance in the stock exchange market, it has to be an innovative one. One that people can truly see as worth their money.
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