Go Public Today By Reverse Merger
Much has been written about the process of taking a company public and the benefits of active participation in the global equities market. Almost all of this information focuses on the "traditional" IPO (Initial Public Offering) and working with an underwriter. This is the world of big money with all its associated glitz and hype. The IPO is regularly touted as "the right way" to take a company public, anything else is suspect. Over the years we've found that what makes an alternative approach suspect is directly related to the experience of the group that's pitching you their services.
Keep in mind that when you contract with a consulting group or underwriter to conduct an IPO you essentially turn over control of the process, and the future of your company, to a group of outsiders whose prime goal is to make as much money off your deal as they possibly can.
There are a variety of alternative methods to the IPO that can be used alone or in combinations. Each of them will provide you with:
- Access to the public financial markets and
- Create an exit strategy for you and your investors.
These are generally the two main objectives for any company looking to go public.
Three key benefits to using the alternative approach.
Control Over Value:
Often underwriters work in collusion with their associates, the institutional buyers and brokers, to "pre-sell" an offering (The focus of several current SEC investigations). The result can be a sharp and artificial increase in share prices at the launch of the IPO. This rapid increase is generally followed by a rapid decline once the sell-off and profit-taking begin. This profit-taking can result in a crippling devaluation of a new issue. It can also place undue stress on a company during what should be a positive growth period. Using the available alternatives may not be as glamorous or meteoric but, it's also not as risk prone as the IPO. Working with your market makers you can establish a practical and supportable value for your stock prior to a major fund raising event, a value that isn't artificially created by heavy upfront demand and short supply.
Control Over Timing:
Another aspect of the IPO left to the control of the underwriter is the timing. If they don't feel that the market conditions are favorable to a highly profitable outcome they can and do stop the entire process. The alternative approaches allow you and your team to decide when, where and at what level you'll enter the marketplace. You can structure the process with contingency options or step it out using several phases instead of having to rely on a single event.
Lower Cost to Enter:
The up front legal, accounting and marketing costs to prepare an IPO launch are covered by the client. They are lost if your underwriter puts a hold on or withdraws from the IPO. The fund-raising event, what was supposed to be a positive financial event, can turn into a drain on precious resources. There are legal, accounting and marketing costs associated with the alternative approaches too. But, they are generally less than half the cost of doing an IPO and how they are incurred is under your control.