Going Public in the United States
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Transcript of Going Public in the United States
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Going Public in the United StatesGoing Public in the United States
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How to Become Publicly Traded in the United States
IPOsReverse mergerSPACsPublic spin-off
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IPOs
ExpenseTimeUnderwriting Agreement
• When executedSEC involvementFinancial statements/U.S. GAAP
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Retain expertsEmployee incentives
• Proper ownership mix• Be early
Cheap stock issueConduct internal due diligence:
• Charter documents• Loans/other financings• Material contracts
General Process
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D&O Insurance Corporate law audit Capital structure Underwriters Management Gun-jumping
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Reverse Merger with a Shell Reverse Merger with a Shell CorporationCorporation
Private company merges with Private company merges with public entity without a businesspublic entity without a business
Less expense, more certaintyLess expense, more certaintyNo underwriter/maybe fairness No underwriter/maybe fairness
opinionopinionLimited liquidity usuallyLimited liquidity usuallyLocating shellLocating shell
של
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The Shell Corporation
Legally-existing public company
• No present operating business
• Shares registered with SEC
• Intrinsic value of being public; possibly cash
• Sometimes created by promoters.
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Reverse Merger Process
Acquire 100% of private company sharesPre-existing shell shareholders retain
equity interest in surviving entityUsually some credit for public entityFormerly private company now a public
company or subsidiary thereof8K — filed after closing
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Reverse Merger BenefitsLower costLess time
• Israel — merger approval; tax issues• Contract negotiation
Exchange listingName changeExecutive compensationCurrency for transactionsPublic exposureSometimes liquidity
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Reverse Merger Cautions
Liability issuesLimited liquiditySomewhat ineffective
at raising capital• Exceptions:
Turner, Occidental, Ivax, Elvis
Costs of continuing compliance
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Form 8K
• 4 days to file
• Same information as in registration statement.
• Not reviewed by SEC until after transaction closes
• Needed to register on exchange.
• Financials conforming to US GAAP must be completed prior to closing.
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Special Purpose Acquisition Company (SPAC)
Shell formed to raise capital via an IPOUsed to acquire existing companyLimited time to make acquisition:
• 18 months or 24 months if LOI signed in 18 months
• Failure to consummate an acquisition within specified time requires winding up and returning net assets
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SPAC Process
Form entityFounding shareholders acquire shares for
nominal considerationManagement commits to purchase warrants in
secondary marketSame form registration statement as IPOUnits pricing $6 - $8Units — Common stock and warrantsWarrants exercisable upon completion of
acquisition or after one year
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Trust account for funds to be used for acquisition• Some to all of underwriter compensation may
remain in trust• Invested in short-term government securities
Shareholders entitled to vote on acquisitionProxy statement required
• Shareholder may vote against the acquisition/ affirmatively elect to convert his/her shares
• Investors entitled to return of shares pro rataAcquisition blocked — 20% or more elect to convertThe fair market value of the target business — at least
80% of SPAC net assets• Need not be cash• Net assets exclude deferred underwriters’
commissions or discounts in trust
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SPAC Benefits
Raising capitalClean shellTarget may accept SPAC shares in lieu of
cashLimited downside for investorFinancial statements easier
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SPAC CautionsSPAC Cautions
Expense of filing S-1, engaging underwriterExpense of filing S-1, engaging underwriter Required shareholder vote for acquisitionRequired shareholder vote for acquisition Directors/management not paidDirectors/management not paid Close SEC scrutinyClose SEC scrutiny
• Takes longer to get through SECTakes longer to get through SEC• Registration statement easier to prepareRegistration statement easier to prepare• CompetitionCompetition• Well-established private equity funds, othersWell-established private equity funds, others
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SPAC Statistics
More than 60 registration statements filed — 2005
14 filings — 200441 SPACs began trading 2004 and 2005
• 20 additional SPACs filed registration statements
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Listing Alternatives
AMEXNASDAQNYSEOTC
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Dual Listing
Concurrent listing on US market and TASETiming of disclosureExposure issuesBusiness reasons
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All Public companies
• Evaluate and disclose internal controls
• Time to comply
• Financial reports certified by CEO/CFO
• Auditor independence
• Disclosure of related party transactions
• Prohibited loans to insiders
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