In the brave new world of post-"seasoning" smallcap land,
how does a company decide the best way to go public? If one assumes a
traditional initial public offering is not available, or undesirable even if
so, but a company sees the benefits of being public and can bear the costs of
doing so, what is the best way to go now?
As we know, in November the SEC put up a giant "Slow"
sign in front of reverse mergers with reporting shell companies by requiring
that they trade over-the-counter for at least one full fiscal year before they
can uplist to a major exchange. The Slow sign is removed if there is an
underwritten public offering for at least $40 million. The sign also does not
come up in all merger situations, but for a discussion on that you have to call
I warn potential clients seeking solutions here on the
blog or from my book that every company's situation is unique and should not be
examined in a vacuum. That said, there are a few general statements that can be
made about life under seasoning.
1. If you are a little earlier stage, you may see the
benefits of a year or two of trading on a platform that has fewer governance
and oversight requirements such as the OTCQB or OTCBB. In that case, seasoning
may not be an issue and a traditional reverse merger can make sense.
2. If you are a larger company, and receive assurances
from a solid financial source that a $40+ million public offering is
achievable, you may not worry and be comfortable you can bypass seasoning after
a reverse merger.
3. If, however, you are at a stage where you wish to be
public, wish to uplist as soon as possible and do not believe you can currently
raise a $40 million public offering, you may want to consider a "self-filing."
Frankly even in situations 1 and 2 above, a company should look at the relative
advantages and disadvantages of as self-filing vs. reverse merger. In a
self-filing, the company makes its own filing with the SEC not to raise money
but to become subject to the SEC reporting requirements and/or register
individual outstanding shares to be publicly resold. It's not an IPO and
it gets you public and avoids seasoning because no reverse merger takes place.
But it does take longer, so you need to examine the impact of that with
So work closely with your advisors. Even in the brave new
world of seasoning, we are busy taking companies public!
For additional insights on reverse mergers,
SPACs, other alternatives to traditional initial public offerings, the small
and microcap markets and the economy, visit the Reverse Merger and
SPAC Blog by David N. Feldman, Esq., Partner of Richardson &
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