Tip of the Week: No IPO ‘Window’ Necessary

Sometimes (such as our present time) there is absolutely no market for IPOs.  During these times, the IPO ‘window’ is said to be ‘closed’.  In 2000, after the stock market crash, the IPO window slammed shut.  The market had opened slightly since then in 2006 and 2007, but only for larger companies.  (In the first half of 2008, only six IPOs raised under $25 million.)  The window opens and shuts without warning and at extremely inopportune moments.  Numerous dot-com companies were left with uncompleted IPOs after the market crash of April 2000. (Some of these completed reverse mergers in order to obtain the benefits of public status.)

One of the reasons smaller IPOs have not come back- and may never come back as in their previous incarnation- is that the market is still reeling from the scandal-plagued Internet era when billions of dollars in fines and settlements were levied in connection with allegations of fraud and favoritism in the IPO market for smaller companies. It leads one to wonder what is indeed the most ‘legitimate’ way to go public.

Unlike IPOs, reverse mergers continue in almost all markets.  In a down market with limited opportunity for IPOs, companies can use reverse mergers as an alternative route to going public.  In an up market with many opportunities for IPOs, many companies still choose reverse mergers as the vehicle of choice because of their other benefits:

• Lower Cost
• Speed
• Less Dilution

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