Chapter 4: How to list your company on the stock market?
By: Ximena Peinado
The steps and requirements you need to make your company public
The main stock exchanges in the world fully recommend listing a company on the stock exchange. Today we have several instruments to do it and it is worth it, since by making your company public you can increase its value, strengthen its financial structure, grant it financial recognition and quality standards, make finances and sources of capitalization more flexible, and in general, vastly improve your company’s image.
By listing a company on the stock exchange, it becomes more attractive both nationally and internationally, since its management would be institutional and thus the enterprise has the obligation to provide the information to the investing public in a completely transparent manner.
With the improvement of the financial structure come positive consequences such as the optimization of costs, the increase in profit margins, immediate liquidity, growth, the consolidation of liabilities, the possibility for research and development, sustainability and development of human capital.
In the same way, according to the Mexican Stock Exchange, the original shareholders can diversify their investment and with it their risk, increase their liquidity and obtain the flexibility to make decisions about their assets.
The New York Stock Exchange, one of the most weighty exchanges, agrees with the benefits and encourages entrepreneurs to do so with the promise of maintaining a market model that mitigates execution risk and reduces price volatility by more than 30%.
Similarly, the London Stock Exchange has talked about the benefits of a company going public; Among the main ones, the broadening of the company’s shareholder base, the establishment of objective market value and the use of quoted shares as the acquisition currency stand out.
The process is complicated, but by following a series of specific steps, you can achieve it if your company is large enough. In the case of the Mexican Stock Exchange, the steps are the following:
First: does your company have these characteristics?
Among the requirements of the Mexican stock exchanges are: the availability of a history of operations for the last three years, the stockholders’ equity has to be above 20 million udis, the average profit in the last 3 years has to be positive, that the Securities subject to Public Offering represent 15% of the capital and at least 10 million titles for the IPO and 200 shareholders.
It is necessary to take into account that if you want to maintain control of your company, the offer may not exceed 49% of the capital. In the case of Reit’s it is different, because they can surpass that amount without the technical committee losing its control.
For a company to go public, it needs multidisciplinary teams to help it along the way, such as investment banking, which structures the company in the formal process of executing the IPO.
Large transnational companies that started in a university dormitory or at home (like Facebook and Apple) were encouraged by banks to access investor capital and grow in the market.
Preparation consists of having a series of documents ready that will be mentioned later. Among them are the financial statements, which type of shares are going to be included and the numbers with which that action will go to market.
Also, it is recommended that you master what makes your company unique to others: clarify the strategies used within it, its competitive advantages, its mission, its vision and its areas of opportunity.
Prepare your company in Corporate Governance:
It is necessary to implement a mechanism that regulates the relations between the shareholders, the directors and the administration of the company. This requires expert advice. If you do not have a Corporate Governance specialist in your company, contact the Mexican Stock Exchange. When implementing Corporate Governance, your company must have:
- Legal Constitution of the Board of Directors.
- Formality in its administrative and operational processes.
- At least have an Independent Council.
- Have a Support Committee (Audit and Corporate Practices).
Have a Placement Intermediary
A placement agent is the brokerage firm that signs the placement agreement with the issuer and is responsible for reviewing and analyzing the documentation and information related to the issuer’s business and activities, so that a value is registered and, when needed, the approval of their public offer, as well as carrying out the operations of placing these securities on the market.
Preferably, choose a brokerage firm that suits your company’s goals. In the Public Offering, the price is determined jointly by the issuer and the placement intermediary (brokerage house) based on market conditions and the company’s potential. In the secondary market, the price is determined by free supply and demand.
The price of the Stock Certificates, the total amount of their issue, the denomination, the nominal value, the term, the date of issue, registration and settlement, the due date, the applicable interest rate and the way to calculate it (if applicable), the periodicity of interest payments, among other characteristics, will also be determined by the Issuer and the Placement Intermediary.
Choose a Stock Rating Agency
A Stock Rating Agency measures the probability that an entity will meet its financial obligations. Issue ratings also measure the probability that the issuer will not pay the value of the issues at maturity and meet the scheduled interest payments.
Therefore, the ratings that these agencies use are one way to measure risk. Some elements included in the rating of companies include business risk (such as management performance or size criteria), financial risk (profitability, cash flow, financial flexibility) and global perspective (political risk, classification cycles, macroeconomic conditions).
Submit a Registration Request
The documentation on the application for registration and authorization of public offering are found in the “Application Formats” of the Mexican Stock Exchange.
Promotion and Sale of Securities
You must present your company to the key investor public, including the placement’s sales force and potential investors. The underwriter must distribute its securities and provide price stabilization, actively support buying and selling, and taking care of sponsorship resources, such as investor conferences and promotional presentations for non-negotiation purposes.
Maintenance of the Emission
Companies that wish to register their securities on the BMV list, must consider the following aspects for the maintenance of their issue: comply with the basic requirements and standards set forth in the current regulations of the CNBV and the Mexican Stock Exchange according to the type of instrument they wish to list.
Then, the action enters a marketing stage, where it is formally sold.
The final stage is traded the stock, a demand book is built, a price is reached and the placement is closed.
Do not forget that there are certain aspects that must be taken care of so that the issue remains in the bag. According to the guidelines of the Mexican Stock Exchange, a company must have at least 100 shareholders, 12% of the Paid Share Capital among investors, have an analysis coverage and a market maker.
As we can see, the listing process is very detailed because only companies that have a good organization and visualization of the objectives are allowed to enter. Not only will the process help you to have a clear vision of the trajectory of your company, but it will also give you the possibility of multiplying the value of your company.
Keep learning from PR1ME Capital
We have already discussed how the Mexican financial system works , in addition to telling you everything you need to know about listing . Do not miss our next installment and keep learning with PR1ME Capital.
We also already told you what the origins of the bag are. Listing on the stock exchange can be in many ways, and for this reason in the next chapter we will explain them to you so that you as an entrepreneur determine what is best for your company. Keep reading to us at PR1ME Capital and stay tuned for the next chapter.