Alternatives to an IPO

One of the casualities of the recent stock market crash was the demise of small and mid-size brokerage underwriting firms.

Brokerage firms income depends on IPO commissions and fees, and commissions from secondary trading. The internet changed the way investors obtained information and traded stocks. Electronic trading and discount brokers reduced trading commissions and brokers profits. The stock market crash killed IPO's and their corresponding fees. The large brokerage firms and underwriters, with their huge financial reserves, were able stay in business. Most of the small and mid-size underwriting firms were forced to close their doors. The result is that most underwritings in today's market are $100,000,000 or more, with a few in the $50,000,000 range. Small companies desiring to go public need an alternative to the conventional IPO.

Small companies can still go public and access public markets to raise capital using IPO alternatives.

The stock market recovered and investors are back in the market for IPO stocks. The difference between today’s market and yesterday is that there are almost no small IPO’s. Most IPO’s today are $100-$150 million plus. Gone are the $5-10-20 million IPO along with the small underwriters who brought them to market.

If a company is too small to attract a major underwriter, there are alternatives to a conventional IPO. Small companies desiring to “go public and raise money” can accomplish this through any of the following methods.

Merge with a small successful public company and sell stock into the market.

There are many small public companies that would have an interest in issuing their stock to acquire a well managed and profitable private company in the same industry. Overall control can be shared between the major shareholders of the two companies. Each company could be operated as a separate subsidiary with its own officers and directors. Once the merger was complete, new shares can be registered and sold to provide expansion capital.

Conduct a private placement too 200 plus shareholders followed by an SEC registration of the private placement shares and new shares to be sold to the public.

The objective of the private placement is to develop a shareholder base for the company which upon completion of the private placement and a registration, sets the stage for a public offering and stock trading symbol. If a company has 200 shareholders and completed a registration of the private placement shares and new shares to be sold to the public, we can obtain a stock trading symbol and begin selling shares the public. The offering can take place over a selling period of approximately six months. The company can pay stockbrokers up to a 10% commission to sell their shares. The public offering has no minimum or escrow. The company can use and spend the offering proceeds starting with the first dollar.

Complete a reverse merger with a public shell company, followed by a stock offering.

It is estimated that nearly half of all companies that went public in the last five years did a reverse merger. The better know companies utilizing a reverse merger are Turner Broadcasting (CNN), Blockbuster Entertainment, Occidental Petroleum (Armand Hammer), Waste Management, Cross Media, ViaCom and Placer Dome.