Entrepreneurs Mal Spooner, Raymond Steele and William Shaw are the proprietors of Mavrix Fund Management Inc., an asset management company. The three partners started the company when their previous employer, YMG Management, sold off its mutual division in order to focus on its institutional business. They purchased the division and the right to manage its’ approximately $50 million worth of assets (Barry Critchley, 2004). Mavrix has grown to almost $480 million of assets under their management in just three short years. This young and successful company has recently announced its decision to go public on Monday, April 19th, 2004.
Constance Bagley and Craig Dauchy (1998), stated two reasons why companies decide to go public (1) the company has reached the point at which the initial investors have invested the total amount of capital that they are willing to provide and are focused on liquidity and (2) the company has made sufficient progress to make a public offering viable. Judging by the size and financial growth of this enterprise, it is conceivable that the owners of Mavrix may have been influenced by both of these factors. Discussed in this paper are the reasons for Mavrix’s decision to go public and some of the disadvantages of this option.
2.0 Reasons for Going Public
“For many entrepreneurs, the company’s initial public offering (IPO) is the realization of a dream,” (Bagley and Dauchy, 1998). This statement holds true for the owners of Mavrix. The company has priced its IPO of five million common shares at $3.75 per share, totaling proceeds of $18.75 million. Their first offering of the company’s securities to the public will allow the owners access to the capital necessary for the company reach its potential. Mavrix plans to use up to $8 million of the proceeds to repay its total debt owed to Trilon Bancorp Inc., a major shareholder of Mavrix (Critchley, 2004). Going public will also give the company access to broader financial markets to fund capital requirements such as financing the payment of deferred sales commissions.
According to Dr. Mary Han in her lecture on March 11, 2004, the Sustainability Model consists of three components that have an equal and opposite force on each other. They are: founder’s vision, internal capabilities of the organization, and realistic assessment of the external environment. Mavrix has sustained over the past three years, not only because the founders focused on their core competency, but because they have also built-up their internal capabilities and realistically assessed their external environment. While its core competence is asset management, Mavrix has distinguished itself from its competitors in the past by creating its administrative services division. This revenue generating division offers services such as bookkeeping and accounting to other fund companies. Thus, Mavrix has proven its ability to adapt to change efficiently, manage its competitive position amongst its rivals and achieve profitability. Finally, the founders of Mavrix are leaders in their trade and share the vision and passion to improve their enterprise through long-term goals.
Some argue that entrepreneurs who choose to go public lack the entrepreneurial spirit of those who continue to grow and build their business on their own (Han, 2004). However, according to Bagley and Dauchy (1998), an IPO of the company’s securities to the public symbolizes recognition of the entrepreneur’s vision. Spooner, Steele and Shaw will soon be able to realize a long-term goal of theirs and enjoy the benefits of public visibility. They will have the opportunity of returning to the public market to raise additional capital in the future, provided that their company’s performance is able to sustain. Furthermore, the IPO will value Mavrix’s shares much higher than the price paid by the founders and will allow them access to the public market for sale of their shares. This capital can be resourcefully used to help further grow the business by developing new products and acquiring new assets. However, the long-term sustainability of Mavrix will be dependent on its internal strengths including: understanding its customers’ ever changing wants and needs, and its renewable competitiveness.
3.0 Disadvantages of Going Public
Although going public for Mavrix has proven to be a successful resolution, there are several drawbacks to this option. Public companies have many obligations and legal duties owed to its shareholders. Once public, Mavrix will have to perpetually deal with the pressures of being under public examination and scrutiny. There will be greater onus on the officers and directors of the company to disclose to the marketplace the total amount of the company’s stock they and their families own (Bagley and Dauchy, 1998). Furthermore, the process of going public is very expensive as there are a number of fees associated with the procedure. It also requires a lot of managerial time and expenses that will primarily be tied up in legal, accounting and printing fees. The biggest disadvantage of going public, from an entrepreneurial perspective, is that the founders will have to give up a considerable amount of control of the company. They will no longer have the power to freely make executive decisions without first consulting the shareholders of the company.
4.0 Conclusion
In a few short days, Mavrix will be Canada’s newest publicly traded mutual fund company. It has out done its competitor, Clarington, a smaller mutual fund company that unsuccessfully tried to go public last fall. The capital raised through going public, will give the company the opportunity to grow, grasp opportunities and obtain long-term sustainability. Although the proprietors of this company have successfully realized a dream, there will be many disadvantages that they may face. Instead of being at the forefront of decision making they will have to take a step back. They will also have a greater responsibility and legal obligation to the shareholders of the company. Although there are many pros and cons to the situation at hand, the future success of Mavrix will ultimately depend on its ability to obtain long-term sustainability.
5.0 References
Bagley, C. and Dauchy, C. (1998). The Entrepreneur’s Guide to Business Law. Cincinnati, Ohio: South-Western College Publishing.
Bhide, A. Roberts, M. Sahlman, W., Stevenson, W. (1999). Going public. The Entrepreneurial Venture (2nd ed.). Boston, Massachusetts: Harvard Business School Press, pp. 404 - 440.
Critchely, B. (2004, April 13). Mavrix Fund Management goes public next Monday. The Financial Post, pp. FP7.
Han, M. (2004, March 11). Lecture.
APPENDIX A
Critchely, B. (2004, April 13). Mavrix Fund Management goes public next Monday. The Financial Post, pp. FP7.
