Miami, Florida, United States, 20th May 2024 – The journey to becoming a publicly traded company is more versatile today than ever before. While the traditional IPO remains a sought-after path for its structure and prestige, a growing number of companies are exploring alternative routes such as reverse mergers, SPACs, and direct listings. Fund Manager Ashkan Mapar from Alumni Capital shares his insights on these varied pathways, each offering unique advantages and challenges. This article delves into what businesses need to consider when deciding how to go public, ensuring they choose the best route to align with their long-term goals.
Traditional IPOs Versus Alternative Paths
The decision to go public is a monumental step for any company, but the path it chooses can significantly influence its future. The traditional initial public offering (IPO) is often viewed as the gold standard for its ability to raise substantial capital and boost company prestige. However, it requires a robust financial foundation and the ability to meet stringent regulatory requirements.
On the other hand, alternative paths offer different advantages that may be more aligned with a company’s specific circumstances.
Reverse Mergers
Reverse mergers allow a private company to go public by merging with an existing public company, whether it be with a shell company or a company with minimal operations.
Due to the associated legal and accounting fees, a reverse merger can often be a quick and cost-efficient method of “going public” compared to an initial public offering (IPO). And while the public company is required to report the reverse merger in a Form 8-K filing with the SEC, there are no registration requirements under the Securities Act of 1933 as there would be for an IPO.
However, there are risks to consider. Companies that go public via reverse merger may not attract the attention of major brokerage firms as an investment bank is not in charge of taking them public via an initial public offering. Hence, securities analysts of major brokerage firms may not provide coverage of the company merging as there is little incentive for brokerage firms to recommend the purchase of the company’s common stock.
Additionally, the previously existing public shell company may have “skeletons in the closet”, meaning that management teams may find it costly to clean up the public entity of any potential existing debtors, or delinquencies.
However, a reverse merger is a great way for any private company looking for a quick and efficient way to go public if they are able to find the right public company candidate.
Special Purpose Acquisition Companies (SPACs)
Special Purpose Acquisition Companies (SPACs) provide another avenue, where a shell company raises funds through an IPO to acquire a private company, thus taking it public through acquisition.
By choosing to go public via a SPAC, companies can choose to go public sooner. While the typical IPO process takes 12 to 18 months, going public via a SPAC merger can often take 3 to 6 months, which gives companies and opportunity to raise capital via a secondary offering on the public markets sooner. Additionally, choosing to go public via SPAC gives companies the opportunity to partner with an existing management team that SPAC sponsors put in place.
Management teams should consider the high transaction costs and the potential for high equity dilution of the company’s cap table.
Ashkan Mapar emphasizes the strategic nature of this decision: “Choosing how to go public is as crucial as the decision to go public itself. Each pathway has its own set of benefits that can align differently depending on the company’s readiness, financial health, and long-term aspirations.”
Uplisting from OTC to Major Exchanges
Transitioning from an Over-the-Counter (OTC) market to a major exchange like Nasdaq or the New York Stock Exchange (NYSE) is a significant strategic move for many companies. This process, known as uplisting, not only elevates a company’s profile but also broadens its access to more serious institutional investors and larger capital pools. “Uplisting can dramatically change a company’s visibility and credibility in the market,” says Ashkan Mapar. This transition requires meeting higher regulatory and financial standards, which in turn can enhance investor confidence and potentially lead to an improved valuation.
The benefits of uplisting are manifold. Companies often experience increased liquidity of their shares, a broader and more diverse investor base, and enhanced market exposure via increased research analyst coverage from major brokerage firms. However, the process demands meticulous preparation and alignment with stricter exchange requirements, including higher minimum share prices, more substantial shareholder equity, and adherence to more rigorous corporate governance standards.
Securing Post-IPO Financing
After a company goes public, securing additional financing can be crucial for sustaining growth and navigating market fluctuations. Post-IPO financing agreements with institutional investors are vital tools that provide companies with the flexibility to raise capital as needed. “Such agreements are a safety net, giving companies the operational breathing room to execute their long-term strategies without the constant pressure of financial shortfalls or market volatility,” explains Ashkan.
These financing arrangements might include options like at-the-market offerings (ATMs), equity lines of credit, convertible debentures, or additional follow-on offerings. Each option has its characteristics and suitability, depending on the company’s situation and market conditions. For instance, ATMs and equity lines of credit allow companies to sell equity directly into the trading market at prevailing market prices, offering flexibility and efficiency in capital raising.
Implementing these strategies requires a sound understanding of market trends and investor expectations. Companies must also ensure that these agreements align with their broader financial strategies to avoid diluting existing shareholders excessively or compromising future growth prospects. Ashkan highlights, “It’s not just about securing capital; it’s about smart capital management that supports sustainable growth.”
Partnering with the Right Service Providers
Successfully navigating the complexities of going public involves more than just a robust financial strategy; it requires the support of knowledgeable and reliable service providers. Selecting the right partners—be it accounting firms, transfer agents (TAs), legal counsel, or investor relations (IR) firms—is essential. “These partnerships are crucial; they ensure not only compliance with regulatory demands but also help in effectively communicating your value to the market,” points out Ashkan Mapar.
Accounting firms play a pivotal role in preparing audited financial statements that meet stringent SEC requirements, while legal teams navigate the labyrinth of legalities ensuring all regulatory bases are covered. Transfer agents manage shareholder records and ensure the efficient transfer of stock ownership, which becomes particularly critical during and after the public offering. Lastly, investor relations firms help manage communications with current and potential investors, shaping the public perception of the company.
Each provider must be chosen with care, ensuring they align with the company’s mission and understand its industry. The right partners can streamline the entire process, mitigating risks and enhancing the company’s presentation to the market. Ashkan emphasizes, “Your service providers are your front line; they can make or break your entry into the public domain.”
Navigating the journey to going public is a multifaceted endeavor, filled with strategic decisions that can significantly impact a company’s future. From choosing the right path to go public—be it a traditional IPO, a reverse merger, SPAC, or direct listing—to understanding the benefits of uplisting and securing vital post-IPO financing, each step requires careful consideration and strategic planning. Moreover, the role of specialized service providers cannot be overstated, as they ensure compliance, facilitate transactions, and communicate value.
Ashkan Mapar of Alumni Capital concludes, “The landscape of public offerings is evolving, and with it, the strategies for success. Companies that can adeptly navigate these paths, anticipate their financing needs, and choose their partners wisely are the ones that will thrive in the competitive markets of tomorrow.” This forward-looking perspective encourages companies to approach the public offering process with a comprehensive strategy, ensuring they are well-prepared to seize the opportunities that lie ahead.
Media Contact
Organization: Alumni Capital Management
Contact Person: Ashkan Mapar
Website: https://alumnicapital.com
Email: INQUIRIES@ALUMNICAPITAL.COM
City: Miami
State: Florida
Country: United States
Release Id: 20052412335