Initial Public Offerings


GOING PUBLIC  

Overview

A viable alternative for some company owners that are trying to raise capital or achieve partial liquidity (i.e., sell part of their stock ownership and thereby diversify their personal investments) is to take their private company public. Traditionally, there have been two methods for taking a mid-market company public:

  1. The reverse merger whereby the operating company is merged into a corporate shell that is already public; and
  2. An initial public offering (IPO).

The Securities and Exchange Commission (SEC) can be expected to scrutinize very carefully the trading of shell company (reverse merger) stock. It is believed that such mergers and subsequent trading are ripe for manipulation. Consequently, we will focus more on IPOs as the most logical method for a company to go public.

Advantages of Trading Publicly

  • The company’s access to capital will increase since it can contact more potential investors.
  • The company may become more widely known.
  • The company may obtain financing more easily in the future if investor interest in the company grows enough to sustain a secondary trading market in its securities.
  • Controlling shareholders, such as the company's officers or directors, may have a ready market for their shares.
  • The company may be able to attract and retain more highly qualified personnel if it can offer stock options, bonuses, or other incentives with a known market value.
  • The image of the company may be improved.
  • Stock becomes available for the company to make its own acquisitions.
  • Immediate partial liquidity for current shareholders.
  • Immediate increase in company valuation.
  • Principals can retain majority ownership of the company.

Disadvantages of being a Publicly Traded Company

  • Management must continue to keep shareholders informed about the company's business operations, financial condition, and management, incurring additional costs and new legal obligations. In the vernacular, the company must be transparent.
  • The company’s officers may be liable if they do not fulfill these new legal obligations.
  • Management may lose some flexibility in managing the company's affairs, particularly when shareholders must approve the actions.
  • The public offering may take time and money to accomplish. ( Note: Our IPO providers take equity in the company so that the cash expenditures are minimized.)

One Source M&A Contact Plan

Please contact us if you would like more information about IPOs. In particular, we can direct you to our strategic partner that:

  • Will manage the IPO process;
  • Raises the capital necessary to cover the cost of the IPO so there is no financial burden to the company;
  • Provides at least one member to the board of directors for guidance;
  • Reviews all company financial statements;
  • Manages SEC & NASD filings;
  • Handles all investor relations issues;
  • Oversees the selling of stock on the over-the-counter market;
  • Partners with the client for a minimum of two years following the IPO to help ensure the company’s success in the public arena.

Certain criteria must be met before your company can be considered a viable candidate. They include profitability (generally at least $1 million annual profits), strong management and other considerations that will be discussed on an individual basis.