"The effects of listing
results from the italian mid & small caps"
A survey by Borsa Italiana

Borsa Italiana has carried out research on pre and post Ipo performance of the 127 mid & small caps that went public on the Italian equity market between 1995 and 2002.

The study has taken a close look at the reaction and conduct of companies by focusing on the main financial ratios and a survey has also been carried out addressing company owners and their management.

Listing and growth

There is a positive relationship between listing and business growth. This is shown by the high yearly sales growth rates of newly-listed companies: +22% in the three years prior to Ipo and +18% in the three years following Ipo, against a 5% national average.

All the companies stated that the resources acquired through the market enabled them to implement at least one development project; 43.8% has added that without the listing such projects would not have been undertaken and implemented.

The resources obtained through the Ipo have mainly been allocated to M&A activities (36.7% of what was reaped) or used to set up new installations (17.8%). Over 70% of the companies carry out acquisitions, on average 4 transactions each.

As they access the equity market, companies make considerable investments. The investment rate, which in the pre Ipo period averages around 15%, exceeds 23% in each of the following three years.

Listing and financial choices

Another consequence of listing is the sharp reduction in leverage (the debt/equity ratio).

Resorting to venture capital as a financing instrument is not done systematically: leverage shows a tendency to going progressively back to the pre-listing situation. It should however be underlined that access to the market improves the relationship with the banking system. Indeed, companies reckon that it increases the ability to open new lines of credit (an effect deemed important by 68.9% of companies) and that loan conditions improve (important for 55.7%).

Listing and operating profit

The newly-listed companies show good operating performance even after listing. After the Ipo, the indicators show a slight drop, consistent with what takes place on other international markets. The ROI (return on investment, measuring how effectively a company uses capital to generate profit) on average equal to 18.7% prior to listing, in the following three years goes down to 11.2% on average. The ROA (return on assets, measuring a company’s profitability as a percentage of the company’s overall assets) drops to 7.3% against an average pre Ipo level of 10.1.

Listing and business organization

Opening up capital requires transparent relations with new stakeholders such as analysts, institutional investors, minority shareholders and the financial press.

Sustaining new relational needs gives rise to considerable changes in terms of organizational and governance systems which, induced by the need of dialoguing with the outside, take on an independent life, speeding up the internal process of evolvement.

91.9% of companies stated they have made changes to their organizations in the period immediately preceding the Ipo whereas 100% made changes post-Ipo.

85.2% and 84.7% of companies made changes in terms of control of operations and strategic planning, respectively, most of which of an incremental nature.

Over 77.0% of companies reckon that going public acted as an "accelerator" of a change that would have come about over a longer term, insofar as it is considered necessary if a company is to be supported in its intention of growing. The interviewees are of the opinion that with the changes that have been made, the said systems are now better equipped to plan business strategies, set financial targets, verify performance, react to changes in a timely manner, and as an all-important element, sustain the needs of financial communications.

The system of external communication is the department that has been reorganized the most. All the companies in the survey stated that they changed their communication systems, a great number of new formalized systems have been introduced for price sensitive communications (85.7%) or managers designated to investor relations (98.9%). Less widespread, but only for the moment, are actions aimed at a more efficient sharing of information flows within the company.

The system of governance and internal auditing has also undergone some reorganization, partly as a result of regulatory obligations required when going public. 90.6% of companies stated that an Internal Audit Committee has been set up and 93.3% that independent members sit on the Board of Directors. The most significant effect attributed to these changes is the increase in the external public’s trust and confidence in company transparency. Secondly, such changes have enabled companies to obtain independent contributions enriching the discussion on business strategies and better control of operating risks.

In almost two thirds of the cases (some 65%), companies stated that, as opposed to control of operations and strategic planning systems, communication governance systems would not have been introduced or reinforced if it had not been for the fact that they went public. In this respect, there is a breaking away from the evolvement as planned by the company in a no-listing scenario.


Being listed on the Stock Exchange is an important event in the life of a company.

Not only in terms of growth opportunities but also in terms of the evolvement of financial decisions and the effects it produces on business organization.

Access to the equity market is an important tool for sustaining business growth, also for more mature companies operating in traditional sectors. Newly-listed companies, as well as showing a growth in sales in excess of the national average, stated (in 4 cases out of 5) that without the listing, the growth rate would have been lower.

As to the organizational changes brought about as a result of accessing the equity market, these are not perceived as a negative time in the company’s life, but as a further boost to accelerate its own growth process.

Companies have indeed felt the positive effects generated on their organization as a result of being listed: about 80% are of the opinion that these changes have – either directly or indirectly - created value. This is the most crucial medium to long term benefit.

Going public means tackling a demanding time for a company and requires some rethinking of the business set-up; however this is not just an investment for its own sake in that the benefits in terms of growth and efficiency fully repay the costs.

Milan, 8 June 2005

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