www.johnlux.net M&A Uses of Going Public with an IPO or Reverse Merger In mergers and acquisitions (M&A), going public through an IPO or reverse merger is a valuable and flexible tool that can increase profits and lower the cost of capital Sellers: Increase Your Valuation – Being public may increase your valuation in a transaction where you are being acquired File a Confidential S-1 to Test Waters under the JOBS Act may put pressure on a buyer. You can “test the waters” for an IPO. Buyers have to compete with IPO price Signing a letter of intent with an underwriter can force a buyer to make an offer. Naturally, the price will be increased as you always have the option of the higher priced IPO A public company that wants to buy you will be more comfortable if your financial reporting is already up to SEC standards. Many companies want sellers to have audited financial statements. As that expense is a big part of the cost of being public, why not do an IPO as you have already incurred a large part of the total cost? Establish Value for Taxes. You may want to establish a value for the company for estate tax or other purposes, such as dressing up your personal financial statements. You may want a public market to sell securities to pay estate taxes, or have the option of selling stock to pay estate taxes instead of facing a fire sale of the company. Key Employees - You may want to keep the loyalty of key employees in a company you are buying – offer them stock options in your public company. Reduced Overall Financing Costs - You may want to reduce your overall financing costs and find that equity is a cheap part of the mix. Increase Your Equity Base - You may want to increase your equity base after incurring a large amount of debt in an LBO. Reduce Debt - You may want to raise money to reduce or pay off debt incurred during a leveraged buyout Giving Liquid Stock to Sellers. You may want to offer the sellers some securities, (common, preferred or debt) to reduce the cash used in buying the company. Sellers naturally want these securities to be liquid Buy Out Dissident Shareholders - You may want to buy out dissident or troublesome shareholders Sell into Hot Market - If your company is in an industry that is being overvalued by Wall Street, you may want to take advantage of this bubble pricing IPO Instead of Vulture Capital - If venture capital companies are offering you inadequate terms or trying to impose agreements that put you at a disadvantage, you may want to seek an IPO instead of venture capital Break VC Covenants - Use an IPO to break out of venture capital covenants, such as right of first refusal on sales. Typically, these end after an IPO. Attractive Valuations. You may believe that the public market will offer you more attractive valuations than venture capitalists Liquidity - Your venture capitalists or other investors may demand liquidity.You yourself may want liq

1. www.securities-law.info
M&A Uses of
Going Public with
an IPO or
Reverse Merger

2. Disclaimer

This is not legal or
investment advice of any
kind

Seek competent advice
from qualified attorneys
and investment bankers

Your situation may vary

The more you know about
finance and business, the
more you can profit

3. Using an IPO as an M&A Tool
In mergers and acquisitions (M&A),
going public through an IPO or reverse
merger is a valuable and flexible tool
that can increase profits and
lower the cost of capital

4. Sellers: Increase Your Valuation
Being public may
increase your
valuation in a
transaction where
you are being
acquired

5. File a Confidential S-1 to Test Waters
File a confidential S-1
under the JOBS Act
may put pressure on a
buyer
You can “test the
waters” for an IPO
Buyers have to
compete with IPO price

6. Letter of Intent with an Underwriter
Signing a letter of intent
with an underwriter can force a
buyer to make an offer
Naturally, the price will be increased
as you always have the option of the
higher priced IPO

7. Selling to Public Company
A public company
that wants to buy
you will be more
comfortable if your
financial reporting
is already up to
SEC standards

8. Accounting
Many companies want
sellers to have audited
financial statements.
As that expense is a big
part of the cost of being
public, why not do an
IPO as you have already
incurred a large part of
the total cost?

9. Establish Value for Taxes
You may want to
establish a value for the
company for estate tax
or other purposes, such
as dressing up your
personal financial
statements

10. Estate Taxes
You may want a public
market to sell securities
to pay estate taxes, or
have the option of
selling stock to pay
estate taxes instead of
facing a fire sale of the
company

11. Key Employees
You may want to keep
the loyalty of key
employees in a
company you are
buying – offer them
stock options in your
public company

12. Reduced Overall Financing Costs
You may want to
reduce your overall
financing costs and
find that equity is a
cheap part of the
mix.

13. Increase Your Equity Base
You may want to
increase your
equity base after
incurring a large
amount of debt in
an LBO

14. Reduce Debt
You may want to
raise money to
reduce or pay off
debt incurred
during a leveraged
buyout

15. Giving Liquid Stock to Sellers
You may want to offer
the sellers some
securities, (common,
preferred or debt) to
reduce the cash used in
buying the company
Sellers naturally want
these securities to be
liquid

16. Buy Out Dissident Shareholders
You may want to
buy out dissident
or troublesome
shareholders

17. Sell into Hot Market
If your company is in
an industry that is
being overvalued by
Wall Street, you may
want to take
advantage of this
bubble pricing

18. IPO Instead of Vulture Capital
If venture capital
companies are offering
you inadequate terms
or trying to impose
agreements that put you
at a disadvantage, you
may want to seek an
IPO instead of venture
capital

19. Break VC Covenants
Use an IPO to break
out of venture capital
covenants, such as
right of first refusal
on sales
Typically, these end
after an IPO

20. Attractive Valuations
You may believe
that the public
market will offer
you more attractive
valuations than
venture capitalists

21. Liquidity
Your venture
capitalists or other
investors may
demand liquidity
You yourself may
want liquidity or the
ability to create
liquidity when you
want it

22. Reduce Control of Outside Investors
You may want to
reduce control of
outside investors
and VCs

23. Avoid Crushing Leverage
If leverage is
crushing the
company, you may
want equity from
an IPO

24. More Financing Options
You might do an
IPO if you want
more options for
future financing

25. Lender Wants Reduced Risk
If your lender
insists, you may go
public
A bank lender may
want to decrease its
loan risk

26. Keep Control
You may want to
do an IPO if the
current control
shareholders want
to keep control

27. Spin Off Assets
An IPO can be
used to spin off
assets, or if the
company wants to
spin off or split up

28. Earn Outs
An IPO can
facilitate the use of
earn out provisions
to make both the
buyer and seller
happy with the
terms of a deal

29. Future Acquisitions
If you want to
acquire other
companies later on
for stock or cash,
you will want to be
public

30. Popular Industry
In considering an
IPO, you need to
look at the popularity
of your industry, and
how the IPO market
is likely to be doing
by the time you are
trading

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