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Going Public
There are two key benefits from going public:
1. Cost of Capital
2. Liquidity for Investors
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Cost of Capital
Cost
of capital is much lower for public companies than for private
companies, in particular with respect to equity versus debt. In
contrast, a private company not only has to give up a larger piece of
itself to get the capital it needs, but also may not be able to get any
money at all, and in most cases money is expensive. As many
entrepreneurs can attest, it is very difficult to successfully raise
money in private companies. Raising money in a public company is far
easier.
Liquidity for Investors
The
easier it is to sell a stock, the more liquid the investment. Stocks in
public companies are far more liquid than in private companies for both
legal and practical reasons. The liquid characteristic of public
company’s stock motivates buyers to pay more for that stock than they
would if the company was private. Other reasons to consider going
public include prestige, ability to use the company’s stock as currency
in mergers and acquisitions, ability to attract employees with stock
options and stock grants.
Downside of listing in US
The
huge burden represented by the US government regulations place
disproportionately high compliance costs (in time and money) on small
companies and is far the biggest reason for electing not to go public
in the traditional manner. This had made European markets more
attractive.
Reasons why a major European stock
exchange is better than OTCBB
Many North American companies are
now-days going public in Europe to avoid some of the onerous over
regulations of the American stock exchanges. The US compliance costs
associated with the Sarbanes-Oxley Act passed in 2002, has made it less
attractive to list a company on an American stock exchange. This act
could also cause high penalties for alleged corporate misconduct
incasing the costs for audits. This is one of the reasons the European
and Hong Kong markets have become more attractive to businesses
planning to go public.
A listing on a European exchange
provides
access to millions of international investors that shy away from the
higher American broker fees. The European markets are appealing for
going public, the Frankfurt Exchange ranks third in terms of volume,
behind New York and NASDAQ. Europe has a most attractive investor pool.
In 2011 Deutsche Börse bought 60% of the NYSE. The European regulations
are more relaxed, and there are no monthly or annual filing fees.
Because there are tax advantages in Europe for holding on to a stock
for a particular period of time, European investors hold on to their
stocks for a longer term than American. This result in more stabile
stock prices. for instance German investors get a tax break for stocks
held over one year, to encourages retention of stocks, and causing less
day trading. Frankfurt has a higher turnover velocity than the London
exchange, and is third in terms of sheer volume, just behind New York
and NASDAQ.
Are European stock exchanges better
than American?
1. All
Shares in Germany and Sweden are
free trading.
Unlike the OTCBB and Pink Sheets, the German and Swedish Stock Exchange
do not restrict sale of shares held by officers, insiders and directors.
2. No Naked Short Selling
in Germany. It was completely banned in Germany by mid 2010. Some
critics blame short sales as a major cause of market downturns, such as
the crash in 1987 and 2008. When short sellers manipulate stock prices,
usually on the OTCBB and Pink Sheets, by taking naked short positions
and then using a smear campaign on chat rooms to drive down the target
stocks, a huge damage could be caused to the company's shareholders.
The problem on the OTCBB and the Pink Sheets should not be
underestimated. To many stock's listed on the OTCBB are trading in the
sub-penny range.
3. Fast Time to listing.
A listing on the Frankfurt, Stockholm, or Stuttgart stock exchanges
would be much faster than any American listing. Time is money! Waiting
six to twelve months to become listed on the OTCBB or Pink Sheets does
take to much valuable time. A listing on a European stock exchange
could take as little as 6 weeks from scratch.
4. No Sarbanes-Oxley.
Two separate studies, one conducted by a group of executives and
academics, and another by McKinsey and Co. for New York Mayor Michael
Bloomberg and New York Senator Charles Schumer, have come to the same
conclusion; Excessive regulation has made the U.S. stock exchanges
(including the OTCBB), a less-than-favorable place to go public, and
singles out the Sarbanes-Oxley Act, as the main reason. The
requirements of Sarbanes-Oxley are extremely costly for listed
companies. Since passage of the Sarbanes-Oxley Act, many U.S. companies
have found the ongoing expense to be reason enough not delist on US
Stock Exchange's.
5. The OTC Bulletin Board is not an official stock exchange.
Frankfurt, Stockholm and Stuttgart stock exchange's are official stock
exchange's. OTC Bulletin Board listed securities are traded by
broker-dealers who negotiate directly with other brokers. OTC stocks
are considered “penny stocks” by licensed brokerage firms, and SEC
rules require that all purchases of such stocks must be unsolicited by
their clients. This literally prohibits brokers and their firms to
lawfully solicit their clients to purchase OTC securities. This limits
the liquidity to develop as del as in Europe. Unlike the
OTC-markets, the German and Swedish stock exchange's are
internationally recognized, just like NASDAQ or NYSE. Frankfurt Stock
Exchange is now considered the most internationally accepted exchange
in the world, with more than 80 countries listed.
The
worldwide electronic securities trading system Xetra is the newest and
most versatile stock trading platform in the world. It is one of
several reasons why companies are switching to the Frankfurt Exchange.
This software platform is continually scanning the market for suitable
buyers and sellers faster than the New York platforms. Furthermore, it
is the fastest in detecting irregular buying patters and issues
"alerts" when such things are found. By end of 2010, more than 65% of
the total trades were from countries outside Germany, with 22% from US
investors and 24% of from UK investors.
6. The Frankfurt Stock Exchange has direct
access to greater than 1/3 of the worlds investment capital.
The Frankfurt Stock Exchange receives massive exposure to investor
capital with more than 250 international trading institutions and more
than 4,500 traders worldwide. Investors directly connected to the
Frankfurt Stock Exchange represent a full 35% of the world’s investment
capital. This means that a listing on the Frankfurt Stock Exchange
gives companies access to greater than 1/3 of all the investment
capital on the global market arena.
7. The Frankfurt Stock Exchange
has the highest liquidity from
all exchanges in Europe, including the
London and Paris Stock Exchanges. Market liquidity and trading volume
on the Frankfurt Stock Exchange comes third in the entire world.
8.
Cost for a German/Swedish
listing is considerably below an
OTC-market
listing. The Sarbanes-Oxley Act has created very high listing
costs for
trading on the OTC-markets. Cost for a listing on the Frankfurt Stock
Exchange are small in comparison.
In
conclusion Frankfurt, Stockholm and Stuttgart offers less cost, better
liquidity, and greater access to capital. Call us today to discuss a
listing of your company.
Call Now 1 416 444-4001, 1 313
918
1320, +46 40 644 4636
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