Listings
A listing, or IPO (Initial Public Offering), is when a company is listed on a stock exchange and its shares become available for public trading. All companies preparing for a listing must be public limited companies, which requires a resolution by the general meeting before the company can initiate its IPO process. It’s most common for a company, in connection with an IPO, to carry out a directed share issue to the public. There are several requirements that must be met for a company to be listed on the stock exchange – for example, the company must be affiliated to Euroclear Sweden AB.
Where can a company be listed?
There are two regulated markets for equity trading in Sweden – Nasdaq Stockholm (also known as Nasdaq or Stockholmsbörsen) and Nordic Growth Market Equity (NGM). In addition, there are three different trading platforms, also referred to as MTFs (Multilateral Trading Facilities) – First North, Spotlight, and NGM Nordic MTF (Nordic MTF). Since MTFs are a simpler form of marketplace, the requirements for being listed there are less extensive than those for listing on one of the regulated markets.
Why do companies go public?
There are many reasons why a company might choose to go public. Most often, it’s because the company wants to expand and grow its operations. To finance continued growth, it’s easier to raise new capital by carrying out a new share issue.
Advantages of a listing
When a company’s shares are listed on a marketplace, they become easier to access and trade – both for the general public and for employees who held shares before the listing. It also gives existing shareholders the opportunity to sell their shares and realize their value.
A listing is an excellent way to increase awareness of the company, as the spread of information during the listing process strengthens the company’s brand. Transparency also increases due to the disclosure requirements associated with a listing. In a way, a listing serves as a mark of quality for the company.
Disadvantages of a listing
Just as there are advantages, there are also certain drawbacks to consider before deciding to go public, such as:
- The requirement to comply with stock exchange regulations may lead to higher costs for the company.
- Shareholders may focus more on the company’s short-term performance.
- Since anyone can buy shares, competitors could acquire shares and thereby gain voting power in the company.
How Are Shares Valued in an IPO?
The pricing process at the time of listing is complex, and several factors must be considered. Financial advisors assess how attractive the company is likely to be on the market and how investors are expected to value it. A valuation may also be conducted using a discounted cash flow (DCF) analysis, in which the expected cash flow over a given time period is estimated and a theoretical present value is calculated.
Once the company’s shares have been valued, there are two main approaches: either a price range is set within which the final price will be determined, or a fixed price is established. If the first option is chosen, a book building process is carried out during the subscription period. This means that investors – such as investment companies and fund managers – indicate how many shares they wish to purchase and at what price. The company’s board of directors then sets the final price in consultation with the owners and financial advisors, based on these bids.