Direct Public Offering or Reverse Merger; Know Your Best Option for Going Public
Introduction
For at least the last twelve months, I have received calls daily from companies wanting to go public. This interest in going public transactions signifies a big change from the few years prior.
Beginning in 2009, the small-cap and reverse merger, initial public offering (IPO) and direct public offering (DPO) markets diminished greatly. I can identify at least seven main reasons for the downfall of the going public transactions. Briefly, those reasons are: (1) the general state of the economy, plainly stated, was not good; (2) backlash from a series of fraud allegations, SEC enforcement actions, and trading suspensions of Chinese companies following reverse mergers; (3) the 2008 Rule 144 amendments including the prohibition of use of the rule for shell company and former shell company shareholders; (4) problems clearing penny stock with broker dealers and FINRA’s enforcement of broker-dealer and clearing house due diligence requirements related to penny stocks; (5) DTC scrutiny and difficulty in obtaining clearance following
Crowdfunding Direct Public Offerings
Background:
As a reminder, on April 5, 2012 President Obama signed the JOBS Act into law. Part of the JOBS Act is the Crowdfunding Act, the full title of which is the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012”. The Crowdfunding Act creates a new exemption to the registration requirements under a newly designated Section 4(6) of the Securities Act of 1933, as amended. Although the Crowdfunding Act is, by definition, an exemption from the registration requirements and therefore a new form of private placement, innovative and forward thinking minds have already come up with a method of utilizing the crowdfunding methodology for a public, registered offering.
What is a crowdfunding registered offering:
A crowdfunding registered offering is a combination of direct public offering (DPO) and initial public offering (IPO). As I have blogged about in the past, a DPO is like an IPO except the Issuing Company does not use an underwriter to
Back To Basics – IPO Or Not To IPO?
Initial Public Offerings (IPO’s) are on the rise once again. I have potential clients calling me daily interested in going public through an IPO, most have little or no prior knowledge of the public company arena – so back to basics. An IPO is an initial public offering of securities. Prior to proceeding with an IPO, an Issuer should consider the advantages, disadvantages and alternatives.
The advantages of an IPO include:
- Access to capital
- Liquidity of stock
- Public image and prestige; and
- Ability to attract and retain better personnel
The disadvantages of an IPO include:
- Expense – both of the initial transaction and ongoing compliance;
- Public disclosure of business information – public companies are required to be transparent which can give private competitors an edge;
- Limitations on long term strategic decisions
- Civil and criminal liability of executive officers and directors; and
- Takeover danger
The alternatives to an IPO for an Issuer seeking capital include:
- A Section 4(2) and/or Regulation D
