All of the regulators' efforts to rein in actual and perceived abuses in reverse mergers and other IPO alternatives have rested on a somewhat flawed assumption: that an IPO is the gold standard method of going public techniques and that all companies should strive to be "IPO-worthy" as the ideal way to have a publicly traded stock.
So what happened in Facebook's IPO last week? Embarrassing delays in trading execution, allegations of selective disclosure of negative information by Morgan Stanley, and a stock now trading below its IPO offering price. A misreading of the hype leading to a 25% increase in the number of shares being offered at the last minute. Insiders made billions selling their stock in the transaction and it took hours before any retail customers had a chance to participate (this actually may have worked to some of their benefit).
I believe in the value of a traditional IPO, and my firm and I are active helping companies complete IPOs. In fact our firm just handled the first IPO completed under thew new JOBS Act trading on Nasdaq.
But. Most smaller companies have no chance to do an IPO even though they could benefit from a public stock. Others simply do not want to face the delays and costs of an IPO. Alleged criminal activity in the IPO market of the late 1990s led to $2 billion in fines.
So is there a gold standard? No. There are different ways to go public and a company should examine all its options given its own unique situation. Each method has its advantages and disadvantages. Just make sure to examine all the arrows in your quiver if you seek to go 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 & Patel LLP.
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