Comparing Three Ways To Go Public
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Comparing Three Approaches to Going Public
Going public is a significant milestone for any company, offering various paths to achieve this goal. Let's explore three primary methods: Traditional Underwriting, Reverse Merger, and Merging with a New Flex Financial Public Company.
Traditional Underwriting
Timeframe: 6 to 12 months
Cost: $175,000 to $500,000 (Half of this is typically required upfront)
Capital: Generally raises more capital compared to other methods
Challenges: Potential delays or cancellation of underwriting; market conditions may affect the issue price.
Reverse Merger or Acquiring a "Public Shell"
Timeframe: 2 weeks to 60 days
Cost: $150,000 to $400,000
Capital: Does not raise funds, but makes stock tradable
Challenges: Acquired shell may contain undisclosed issues. Control shareholders might get restricted shares.
Advantages: Fastest route to going public. Non-control investors may receive trading shares.
Merging with a New Flex Financial Public Company
Timeframe: 4 to 8 months
Cost: $75,000 to $150,000
Capital: Can raise money and makes stock tradable
Challenges: None identified
Advantages: Allows for custom design to meet the company’s needs, with registered share distribution. New corporation ensures no hidden problems. Offers financial expertise and market support post-transaction.
Preparing for a Reverse Merger or Public Shell Merger
To successfully engage in a reverse merger or public shell merger, consider these steps:
- Find a Clean Public Shell: Consult securities law firms or audit firms to locate suitable shells. Due diligence is crucial to avoid any unwanted liabilities.
- Develop a Comprehensive Business Plan: Essential for attracting investors and ensuring compliance with regulatory bodies.
- Build a Strong Management Team: Public investors look for compelling leadership.
- Create a Convincing Marketing Plan: Demonstrates the ability to achieve sales and growth.
- Ensure Financial Audits: SEC-required audited financial statements for the last two fiscal years.
- Engage Experienced Securities Counsel: Essential for navigating regulatory compliance and ongoing public company obligations.
- Have Public Company Experience: Ensure management includes someone with significant experience in the public sector. Financing consultants like Flex Financial Group can provide invaluable guidance and sometimes offer clean public shells.
Requirements for Closing a Reverse Merger or Public Shell Merger
- Finalize a business plan of the merger partner.
- Gather management information, including the Director Questionnaire.
- Agree on merger structure and terms.
- Secure a letter of intent with escrow payment.
- Provide audited financial statements, aligned with US GAAP.
- Ensure shareholder consent for share exchange.
- Appoint new officers and directors.
- Prepare necessary legal documents, including a share exchange agreement.
- Finalize an 8-K filing with the SEC containing consolidated financial statements within 15 days of closing (with an additional 75 days for audited statements).
The private company’s ability to manage these aspects effectively influences the merger's timing and long-term success.
Notable Examples of Reverse Mergers
- Occidental Petroleum: Pioneered by Armand Hammer in the 1950s through a shell company.
- Turner Broadcasting: Merged with Rice Broadcasting in 1970.
- Siebert Financial Corp: Undertook a reverse merger in 1996 with J. Michaels.
- Rare Medium: Transitioned from a refrigeration company to a thriving entity.
- Acclaim Entertainment: Integrated into Tele-Communications in 1994.
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