The Optimal Time to List Company’s Shares on Stock Exchange

By: Mr. Mohamed El Baz Chairman of E3mel Business

Due to the widespread consideration among business owners to list their companies’ shares on the stock exchange, especially small and medium-sized enterprises (SMEs), I am often asked about the importance of listing a company’s shares on the stock exchange, and the potential positives and challenges associated with this decision, particularly for SMEs. Posed question: What is the optimal timing for such a listing?

Based on 16 years of experience in the stock market, and after “Al Moasher for Programming and Information Dissemination” achieved the third-highest rise among companies listed on the Nile Stock Exchange for small and medium enterprises during May 2024, there are important aspects to be aware of before any company decides to list its shares on the stock exchange.

Before we delve into discussing the pros and cons of companies listing their shares on the stock exchange, let’s discuss the main reasons that might lead business owners to make such a decision in the first place; they are:

• Capital increase

By selling stock, companies can raise large amounts of capital to finance expansion, pay down debt, or invest in research and development.

• Providing Liquidity to Shareholders

This makes it easier for existing shareholders, including investors and early shareholders, to sell their shares and exit if they want.

• Publicity, Credibility

Trading the company’s shares on the stock exchange may increase the company’s visibility and enhance its reputation and credibility with customers, partners, and even potential employees.

• Factors that Attract Talent

Companies that go public can offer other stock-based benefits to attract talent to work for them, as well as retaining them.

Positives

The positives that the company may reap include:

• Increase the company’s ability to raise funds- what drives growth and innovation.
• Market-driven valuation within a stock exchange can reflect a company’s true value based on investor perceptions and market conditions.
• Increased company visibility may lead to more business opportunities and partnerships.

Challenges

Challenges that may come with offering shares on the stock exchange include:

• Public companies face stringent regulatory requirements, including disclosure obligations and corporate governance standards.
• Pressure to meet quarterly earnings expectations may lead to a focus on short-term results at the expense of long-term strategy.
• The process of declaring and maintaining a company’s public status is expensive, including fees, legal costs and ongoing compliance expenses.

Additional challenges

Now let us specifically mention times of global crises and inflation, such as the one we are experiencing now, as these periods create additional challenges to the idea of ​​offering shares on the stock exchange. They include:

• Economic instability leads to significant market volatility which affects stock prices and investor confidence.
• Inflation increases operational costs which may reduce profit margins; Thus, investor interest weakens.
• Volatile economic conditions can make it difficult to achieve fair valuations which may lead to a decline in IPO prices.

Therefore, we emphasize the importance of considering several factors before making a decision to proceed with the offering, most importantly:

• Economic environment

The overall environment of the economy greatly affects investor sentiment; During periods of high inflation or economic uncertainty, investors may be more risk averse. So you should evaluate this point rationally first.

• Basics of Company

Strong fundamentals, including a robust business model, stable revenue streams, and effective management, can mitigate some of the risks associated with public offerings in turbulent time. Furthermore, this makes it a relatively safe choice for concerned investors.

• Strategic Timing
• Some companies might delay listing until economic conditions stabilize to get better valuations and attract more investors. This highlights the need to balance strategic timing with company’s specific circumstances.

In the end, we find that a strong business model, effective management methods, and commitment to short-term and long-term growth strategies are the safe way out for companies during crises. Whether the company decides to go public now or later, it must choose the optimal timing.

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