For many small and medium-sized business owners in China, an important goal is to go public within the next 5 years. The choice of time and place to go public largely determines how successful a small and medium-sized enterprise will be in the future, and of course, will directly affect the future personal wealth of the business owners.
The right timing is crucial for the business itself and the business owners’ wealth. Therefore, the choice of time and place to go public is an issue that business owners must consider with care.
We at EUECM observe that many excellent Chinese SMEs were listed in the wrong place at the wrong time. As a result, the IPO may not bring any benefit to the enterprise. In fact, it may even cause harm.
The Benefits of an IPO
IPO is the dream of many small and medium-sized business owners. An Initial Public Offering (IPO) can also bring many benefits to enterprises:
- Financial development
- Increase of brand awareness and visibility
- Liquidity through corporate shares
- Diversification of wealth by selling shares
- Eligibility to low-interest loans, because the enterprise is standardized and transparent
- Easier and cheaper acquisition options, because equity can be used instead of cash
- Core employees can be attracted and retained through equity incentive
The Secret of Successful IPO
At the same time, IPO is also risky. To be successful, enterprises must take the following actions:
- Go public at the right time
- Go public on the right Stock Exchange – domestic or foreign
- Go public at the right price
- Have the right investment banks and financial advisors to assist with the IPO
Why Enterprises go Public overseas
Generally speaking, enterprises will choose to go public overseas because of the shortage of domestic market:
- The domestic IPO needs to be approved by the Chinese Securities Regulatory Commission (CSRC), and there are many uncertain factors in the process of approval.
- Even if the CSRC approves the IPO qualification, the waiting time can take anywhere between six months and one year. Being listed in the European emerging Stock Exchange market is also subject to the approval of the EUECM, but the process is very transparent. Once the enterprise is approved, it is the enterprise itself that decides when to list.
- It is estimated that there are around 500 enterprises waiting for domestic IPO in China. This means that it may take years or even decades for SMEs in China to be listed. This waiting period can delay expansion plans of these enterprises significantly if they don’t have other financial means. This can cause a significant loss for enterprises, and the price of enterprises in the future can also decline.
- The stock market is volatile in general. And the stock market in China is even more volatile than in the EUECM. This means that the stock price of Chinese companies may fluctuate a lot in a very short period of time. This can cause problems for Chinese entrepreneurs in strategic planning.
- Foreign investors are not free to buy shares in Shanghai and Shenzhen. This actually limits the number of potential investors.
- In contrast, the Europe Emerging Companies Market, referred to as EUECM, is a new stock exchange market in Europe. It mainly provides emerging enterprises and start-ups in Europe and the world with flotation, listing, equity transfer, equity financing, stock trading, information disclosure, supervision, and management services.
EUECM is a multilateral trading facility (MTF) and is defined by the European financial instruments market directive (MiFID II). It is regulated by the ESMA (European Securities Market Authority), the Cypress Securities and Exchange Commission (CYSEC). It further complies with the regulatory requirements of the European financial instruments market regulation (MiFID II).
EUECM is aimed at and serves SMEs around the world with a special focus on China, and helps them to connect with international capital markets, European markets and other major stock markets in the United States. EUECM provides the best opportunities for Chinese and international enterprises to go public overseas.