So you want to list?

Johannesburg – The recent announcement of an initial public offering (IPO) for the world's largest diversified commodity trader Glencore has once again highlighted how much personal wealth can be generated when entrepreneurs decide to list their businesses.

In the process, CEO Ivan Glasenberg will have his stake valued at a whopping $10.5bn, which will make him one of South Africa's wealthiest. Not bad going for someone who has consistently flown beneath the radar.

Entrepreneurs like Mark Zuckerberg from Facebook or Joe Chen from Chinese competitor Renren are expected to net billions as they take their companies public.  

According to US data, April was the busiest month for companies filing for IPOs, signalling that entrepreneurs are feeling increasingly bullish about tapping capital markets for growth.

While the appetite is not quite the same, South African entrepreneurs are also once again considering coming to the local market, said Noah Greenhill, senior general manager at the JSE.

"We are seeing quite a lot of interest and new listings in the property space at the moment, but there are also resource companies as well as smaller businesses looking at the AltX," he told Fin24.

Speaking on the Fin24/Sasfin entrepreneurship podcast, Greenhill said that while the market is receptive to new listings, entrepreneurs and business founders need to think through their motivation for coming to market.

"People need to clearly understand their rationale for listing; if they are deciding to take their company to market because their mate has listed or their focus is simply going to be on the share price, then they need to think again," he said.

With increasingly strenuous legislation being put in place for company directors, are entrepreneurs electing not to go the listed route?

"Whenever this subject of regulation comes up, I point out that much of the legislation applies whether you are listed or not," said Greenhill. He pointed to the new Companies Act as well as South African tax legislation which will apply to all businesses, listed or unlisted.

Get some good advice

This is good and well, but many entrepreneurs feel fewer eyes are scrutinising their every move while their companies remain unlisted. In a business dominated by a family or a single strong entrepreneur who makes all the decisions, the idea of listing can be daunting.

This, said Dino Theodorou from the corporate finance team at Grindrod Bank, is where strong advisers are important.

"A good adviser can work with the management team to ensure they have the right people in place and help them manage expectations both before and after a company is listed," he told Fin24.

Theodorou pointed out that one area where his team spends a lot of time working with entrepreneurs in newly listed businesses is the share price. With entrepreneurs seeing a lot of their wealth closely tied to the share price in a public forum, they are naturally concerned when it falls.

"A well-advised entrepreneur knows that if the underlying fundamentals of the business are sound, this will ultimately be reflected in the share price," said Theodorou.

The question which will be bugging many entrepreneurs at the moment is whether the timing will be right. Markets are volatile, swinging violently on the back of natural disasters, social unrest in Africa and the Middle East as well as questions around the viability of the economic recovery.

However, there is some appetite for smaller capitalisation businesses.

In his quarterly commentary to shareholders in February, Stanlib small cap portfolio manager Shawn Stockigt said: "Generally, we have seen companies' earnings in the small cap sector stabilise after being under pressure in the last few years, with most of this as a result of extensive cost-cutting exercises that companies have implemented which are now bearing fruit."

We can't all hope to build the next Glencore, but listing may well be a powerful tool for entrepreneurs to consider in finalising their wealth.

 - Fin24