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Going
Public (how?) Initial Public Offering
Going public via an initial public offering
is theoretically available to companies of all sizes. Traditional initial public offerings, however, require an underwriter.
There are underwriters in the US and Canada who are focused on this area of the market. Some small companies are using direct public offering (DPO)
as a non-traditional initial public offering with somewhat limited success.
Registration of Existing Securities
Companies may elect to register
their outstanding securities in the US or Canada by filing a prospectus qualifying these securities for resale. Canadian transactions
will need an underwriter if the shares are to be registered in Canada and the company wishes to become a reporting issuer
in Canada. |
RTO
(reverse take over) or RM (reverse merger) What is a Reverse Merger with a Public Shell? A Reverse Merger is a transaction where by the private company
shareholders may gain control of a public company by merging it in with their private company. The private company shareholders
receive a substantial majority of the shares of the public company (normally 85% to 90% or more) and the control of the board
of directors. The transaction can be accomplished in as little as two weeks, resulting in the private company becoming a public
company. The transaction does not go through a review process with state and federal regulators because the public company
has already completed the process. The transaction involves the private and shell company exchanging information on each other,
negotiating the merger terms, and signing a share exchange agreement. At the closing the public shell company issues
a substantial majority of its shares and the board control to the shareholders of the private company. The private company
shareholders pay for the shell and contribute their private company shares to the shell company and the private company is
now public. Advantages to Going Public through Reverse Merger (reverse take over RTO) While small businesses entering the public markets face such challenges
as capital requirements and regulatory hurdles, the advantages of public trading status often far outweigh the disadvantages.
Publicly traded businesses enjoy: - Greater
access to capital and future financing options
- Liquidity
and viable exit for investors and shareholders
- Significantly
higher valuations
- Public prestige and publicity beneficial
for recruiting and marketing
For many small-to-middle
cap businesses, the IPO may neither be feasible nor the most efficient method of gaining access to public status. The benefits of a well-structured reverse merger include: - Quicker and simpler process (average of 2 to
4 months for a reverse merger vs. 1 year for a traditional IPO)
- Significantly
less expensive than an IPO
- Potentially eliminates the risk
associated with fluctuating market conditions
- Less stock
dilution
- Platform for future acquisition strategy
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