Workbrain Corp. – A Case in Exit Strategy

Introduction

It is usually alarming for a company to incur losses when it has been growing at a higher rate with an increased cash flow. Over the past years, the Workbrain Corporation has been growing in the industry of computing through building its workforce management software, mostly used by organizations in managing their employees. However, it has become impossible to meet the objective to develop with a revenue of over US $ 30 million in four years. Therefore, the company has to review its operation in line with a possibility of an initial public offering (IPO) and analyze whether it is the right time to adopt such a strategy. Workbrain has to determine whether stakeholders would be better off if the company pursued potential acquirers and assess the best exchange that would enable it to meet objectives.

The Preparation of Workbrain for an IPO

To meet its objectives, the Workbrain Corporation should start the sale of its stock to the public. Preparing for an IPO has several advantages that can make the company enjoy some benefits in its operations. Workbrain would obtain capital through equity without having any debt. In addition, the ability to raise quick capital from the public is another reason why the organization should prepare to go public through an IPO. Furthermore, the latter is imperative in enlarging and diversifying the equity base since the company will provide cheaper access to capital to its management (Utterback, 1996). An IPO will also enable the Workbrain Corporation to increase its exposure, public image, and prestige in a more potential market. Furthermore, it is imperative to the organization with the aim of retaining better management and employees through equity participation. Through increasing acquisition, an IPO facilitates potential return on shares of stock to the company. Most importantly, it will enable the Workbrain Corporation to create multiple financing opportunities, which will be not limited to cheaper bank loans, convertible debt, and equity among others. Therefore, it should prepare for an IPO to meet its objectives.

Conversely, an IPO may become disgrace to the business when not approached effectively. It may increase the risk of litigation that includes shareholder and private securities class actions. An IPO may also lead to the loss of control and stronger agency problems as a result of new shareholders in the market. On the other hand, risks that may require funding will not be raised in the face of poor risk management. Besides, an IPO will draw more attention and much time of the organization to its management. Most importantly, it may lead to the dissemination of information useful for competitors, customers, and suppliers. Therefore, the Workbrain Corporation should prepare first for overcoming these disadvantages before venturing an IPO.

The Right Time for an IPO

The primary objective of conducting an IPO is to raise capital and to sell the company to the public. It is usually performed when it is experiencing difficulties in management and needs to raise revenue. Therefore, the Workbrain Corporation needs an IPO this time when it is exiting from the market, needs more revenue and requires a competitive advantage to compete with other software company, such as Oracle. Despite the growth of the Workbrain Corporation, it experiences huge cash and massive accounting losses due to the limited number of customers. Going public will not only attract many customers to the business, but will also raise a lot of cash and open many financial opportunities that the firm requires now. Presently, the Workbrain Company needs new investors to contribute to funds needed for the management. It is an appropriate time for an IPO to attract investors to the business, which will bring cash to the organization and invest more money in the general operation of the enterprise.

Better Exchange Services

Taking the Workbrain Corporation to the Toronto Stock Exchange (TSX) will serve the organization better. As much as NASDAQ provides big-league technology stocks, it requires high revenue of $75 million for a successful IPO, and this may be too huge for Workbrain. Through investing in TSX, the company will be able to enjoy most of the benefits that the exchange gives to its customers. Workbrain will receive access to more capital beneficial for its operation. When it is listed on TSX, it will be able to raise quick money by issuing more shares to its investors to purchase. Moreover, such financial resources from investors can be used for company’s growth (Hall & Hofer, 1993).

When the Workbrain Company is listed on TSX, it will be recognized by the public becoming more visible than other firms. Such visibility will help the company to attract new clients and draw attention of the media, which is expensive and unaffordable when approached as an individual company. On the other hand, being listed on TSX will enable Workbrain to gain value higher than the one of its competitors. High valuation is critical since it allows the business to offer more lucrative share packages to its human resources.

The Workbrain Company will be able to maintain control of its operations. Since its shareholders have only limited rights defined by the Shareholders Act, they will not be able to control the company (Rosenberg, 2007). Conversely, firms that are not listed on any stock exchange rely on capital investments from venture capitalists. The latter insist on having control over the company that may hinder its performance (Hall & Hofer, 1993). Besides, listing on TSX reduces the cost of other capital. Going public by Workbrain reduces bank loans that may be difficult to recover. Bank debts can also lead to high interests that can hinder the development of the business. Therefore, Workbrain should venture to list on TSX since this stock exchange organization will serve it better in retaining its financial position.

Benefits of Acquirers and an IPO

Acquirers play a significant role in a business. By definition, these are financial institutions processing debit or credit card payments for merchants. In pursuing potential acquirers in its operation, the Workbrain Company would be able to place its shareholders in a better position as compared to an IPO strategy. While the latter discloses financial and business information, acquirers will conceal it through the use of digital signatures and other cryptographic methodologies used on credit and debit cards. Through investing in acquirers, new shareholders will be placed in a better position with the possibility to control their shares as per the legislative act. On the contrary, an IPO will make the organization lose control and face acute urgency problems when new shareholders are involved in the business operation.

Since an IPO requires time and attention to the business management, using services of acquirers will improve efficiency and reduce time spent on the administration of shareholders and the entire organization. Acquirers introduce data security and fraud risks on their cards that become difficult to monitor when an IPO is used. In pursuing acquirers by the company, stakeholders will be better placed when it comes to the level of information security, unlike in case of an IPO, whereby security is poor, and vital information can be leaked to competitors, as well as crackers with an intention to undermine the reputation of the organization and lead it to bankruptcy.

Available Financing Alternatives

Different individuals, as well as financing institutions, can lend a hand in financing a business based on the benefits they can get from its activities. Workbrain uses investors and shareholders to finance it. However, other alternatives are available for this purpose. Companies have widely used business credit cards with a zero percent interest rate during the first month. Withal, the concurrent interest rates are doubled making it unattractive to most companies. Besides, the home equity line of credit (HELOC) is also considered a financing alternative (Aledort, 2009). According to it, mortgage companies may loan money to owners of property based on its equity, but such loans are paid back with some interest.

Instead of relying upon bank loans, organizations can issue bonds for debt financing. An industrial development revenue bond (IRDB) is an example of a source of finances for an organization that works with the local government to give out bonds to companies involved in industrial development. When such enterprises receive bonds, they are allowed to share them with private investors for benefits of the organization. However, such bonds are repaid with the accrued interest to the development agency. On the other hand, organizations that want to avoid liabilities concerning interests that come with debt financing can obtain capital by means of equity financing from an angel investor. Such investors improve capital and market strategies in the industry, enabling to get finance from other sources. Angel investors usually look for organizations with high return on investment (ROI) (Aledort, 2009).

Furthermore, through savings, an organization or an individual can be able to raise capital to start or maintain the business. Most of the companies have saved profits they obtain from the business for the expansion and maintenance of the existing operation. Stocks and retirement funds can also finance an organization. However, before using such sources, it is necessary to consult a financial planner to be aware of possible disadvantages. Moreover, substantial assets can be used as financing aid to the business. Large assets, such as cars and boats among others, can be sold for cash to start or maintain a company (Aledort, 2009). Other funding alternatives include grants, competitions, or revenue-based financing.

The Need for Raising Money by Workbrain

The Workbrain Corporation needs money to finance its operations. Having many employees, there is a need to maintain such human resources with a good pay and other motivational factors. Thus, the company should raise money to face competition from big software companies such as Oracle dealing in the same line of production. Oracle and Kronos are big firms established and operating for a long time. They have stayed in the market with high competitive advantages and a large amount of capital. For the Workbrain Corporation to compete effectively in the software niche, it should gather more capital that will enhance competitive advantage. Therefore, there is a need for the company to raise money.

Conclusion

The Workbrain Corporation can maintain and improve its operation by adopting the most effective strategies that will lead to customer retention and profits. Through preparing for an IPO, the company can diversify markets to obtain more customers for achieving higher profits. Especially at this time, it needs more clients for better dealings; and an IPO is of vital importance. Besides, although there are many opportunities offered by TSX and NASDAQ, choosing the first one will be the best financing strategy. On the other hand, stakeholders will be more protected in the organization when the Workbrain Corporation establishes relationships with acquirers in its operation. Most importantly, it should choose the best financing institutions to help in raising money for business maintenance and general operation.

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