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Going Public in the United StatesGoing Public in the United States
How to Become Publicly Traded in the United States
IPOsReverse mergerSPACsPublic spin-off
IPOs
ExpenseTimeUnderwriting Agreement
• When executedSEC involvementFinancial statements/U.S. GAAP
Retain expertsEmployee incentives
• Proper ownership mix• Be early
Cheap stock issueConduct internal due diligence:
• Charter documents• Loans/other financings• Material contracts
General Process
D&O Insurance Corporate law audit Capital structure Underwriters Management Gun-jumping
Reverse Merger with a Shell Reverse Merger with a Shell CorporationCorporation
Private company merges with Private company merges with public entity without a businesspublic entity without a business
Less expense, more certaintyLess expense, more certaintyNo underwriter/maybe fairness No underwriter/maybe fairness
opinionopinionLimited liquidity usuallyLimited liquidity usuallyLocating shellLocating shell
של
The Shell Corporation
Legally-existing public company
• No present operating business
• Shares registered with SEC
• Intrinsic value of being public; possibly cash
• Sometimes created by promoters.
Reverse Merger Process
Acquire 100% of private company sharesPre-existing shell shareholders retain
equity interest in surviving entityUsually some credit for public entityFormerly private company now a public
company or subsidiary thereof8K — filed after closing
Reverse Merger BenefitsLower costLess time
• Israel — merger approval; tax issues• Contract negotiation
Exchange listingName changeExecutive compensationCurrency for transactionsPublic exposureSometimes liquidity
Reverse Merger Cautions
Liability issuesLimited liquiditySomewhat ineffective
at raising capital• Exceptions:
Turner, Occidental, Ivax, Elvis
Costs of continuing compliance
Form 8K
• 4 days to file
• Same information as in registration statement.
• Not reviewed by SEC until after transaction closes
• Needed to register on exchange.
• Financials conforming to US GAAP must be completed prior to closing.
Special Purpose Acquisition Company (SPAC)
Shell formed to raise capital via an IPOUsed to acquire existing companyLimited time to make acquisition:
• 18 months or 24 months if LOI signed in 18 months
• Failure to consummate an acquisition within specified time requires winding up and returning net assets
SPAC Process
Form entityFounding shareholders acquire shares for
nominal considerationManagement commits to purchase warrants in
secondary marketSame form registration statement as IPOUnits pricing $6 - $8Units — Common stock and warrantsWarrants exercisable upon completion of
acquisition or after one year
Trust account for funds to be used for acquisition• Some to all of underwriter compensation may
remain in trust• Invested in short-term government securities
Shareholders entitled to vote on acquisitionProxy statement required
• Shareholder may vote against the acquisition/ affirmatively elect to convert his/her shares
• Investors entitled to return of shares pro rataAcquisition blocked — 20% or more elect to convertThe fair market value of the target business — at least
80% of SPAC net assets• Need not be cash• Net assets exclude deferred underwriters’
commissions or discounts in trust
SPAC Benefits
Raising capitalClean shellTarget may accept SPAC shares in lieu of
cashLimited downside for investorFinancial statements easier
SPAC CautionsSPAC Cautions
Expense of filing S-1, engaging underwriterExpense of filing S-1, engaging underwriter Required shareholder vote for acquisitionRequired shareholder vote for acquisition Directors/management not paidDirectors/management not paid Close SEC scrutinyClose SEC scrutiny
• Takes longer to get through SECTakes longer to get through SEC• Registration statement easier to prepareRegistration statement easier to prepare• CompetitionCompetition• Well-established private equity funds, othersWell-established private equity funds, others
SPAC Statistics
More than 60 registration statements filed — 2005
14 filings — 200441 SPACs began trading 2004 and 2005
• 20 additional SPACs filed registration statements
Listing Alternatives
AMEXNASDAQNYSEOTC
Dual Listing
Concurrent listing on US market and TASETiming of disclosureExposure issuesBusiness reasons
All Public companies
• Evaluate and disclose internal controls
• Time to comply
• Financial reports certified by CEO/CFO
• Auditor independence
• Disclosure of related party transactions
• Prohibited loans to insiders
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