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Taking the First Step to a Public Offering We were approached by the management of an operating company with historical revenues in the $4 million range. The company had a limited number of shareholders and management was exploring alternatives to both providing additional capital for expansion and an inevitable exit for its shareholders. At the time the IPO market had been almost non-existent and the decline in the U.S. stock markets had also significantly limited the number of broker-dealers or investment banking firms which would assist a privately-held company with capital. This lack of access to traditional capital markets disproportionately affects small companies, like this client. Because it is generally easier for a company to raise equity financing when the company has a public market for its securities, as there is an established fair market value and an exit to the investment, we suggested a multi-phase approach which would provide access to both additional working capital and an exit strategy for the founding shareholders. As an alternative to a reverse merger into a public shell, we advised the company to undertake a small private placement of securities with registration rights, and prepared an offering memorandum. The company, through a network of its connections, raised the desired capital. We represented the company in the filing of a registration statement with the SEC covering the resale of the shares sold in the private placement. Upon the effectiveness of this registration statement, we assisted the company in identifying a broker-dealer which would assist it in establishing a public market for its securities. A company can create a public market for its securities by obtaining a listing of the securities on a national exchange or a quotation of the securities on the over-the-counter bulletin board. To obtain a listing or quotation a company must satisfy a number of requirements including registration under the Securities Exchange Act of 1934, as amended, which was accomplished through the selling shareholder registration statement, plus having a sufficient amount of unrestricted tradeable securities in the hands of a sufficient amount of shareholders to create a market in the company's securities. The company then gained a listing of the securities on the OTC Bulletin Board. The company was subsequently listed on a national securities exchange and was able to raise additional funds through sale of its securities on the national exchange. | ||||||||
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