Tip of the Week: How Long Does it Take? Part III
By David Feldman at 15 February, 2010, 2:58 pm
New potential clients pondering a reverse merger or self-filing always ask, understandably, how long does the process take to get my company public? How long to get trading? How long until real trading commences? I broke this down into three responses. We talked first about how long the process can take simply to be able to declare your company “public,” then covered the question: when does any trading begin? In this last part the most important question: when does real trading start where there is meaningful volume of trading at a price that truly reflects the company’s value?
As always, the answer is “it depends.” But to put it in perspective, the “by appointment” trading that occurs in the initial months following a merger with a trading shell still requires a registration process to allow more shares to become tradable and more likely to achieve “real” trading. Same as after a Form 10 merger, except instead of spotty trading at prices that could be significantly below the company’s value, no trading occurs at all until a registration is complete. Therefore, in most cases, it takes just as long to get to real trading whether you are merging with a Form 10 or a trading shell. And after a trading or “legacy” shell merger, you have the concern about where the stock trades until more shares are available.
In either case, though, the registration still may not bring the significant trading you are looking for. The two ways to pursue that: (1) get a strong investor relations (IR) firm in to start selling your company’s story to Wall Street, and oh yeah, make sure you are keeping the promises you make about expectations and performance, or (2) do a two-step WRASP type approach to going public (see prior posts for more info on WRASPs) where a Form 10 merger and PIPE is followed by an immediate registration and application to the NYSE AMEX or Nasdaq where, in either case, “real’ trading is much more likely to develop sooner. How long? In a WRASP this can happen in just a few months after going public with a Form 10 merger. In a merger with a “legacy” shell with at least 400 shareholders and a strong company that qualifies for listing on a major exchange, that also can happen in a few months. And yes, in some cases strong trading can be developed on the OTC Bulletin Board, or even the Pink Sheets, if the company is performing well and using a capable IR firm.
In a self-filing, much depends on the shareholder base of your company, the larger it is the more trading is likely to develop. But truthfully, either way one of the steps above also is usually necessary to get real trading going.
So in the end, try to focus not so much on what day the ticker symbol is available, but what day average investors begin to take notice and view trading in your stock as attractive and well-priced with meaningful trading volume. Almost regardless of the method chosen, the time is roughly about the same. There are other pros and cons to each approach, so make sure you bring in strong, experienced professionals to help! Back to regular stuff next….
Mitch - I assume you are talking about a self-filing. I’m not sure if you are talking about “change of control” provisions, things that trigger liquidation preferences, or eliminating covenants and obligations. Let’s take them one by one. There is typically no change in stock ownership in a self-filing, so it is generally not a change in control. Often “liquidation events” include things like sales, but most provisions that I see would not likely trigger it as a liquidation event. The most interesting are protective provisions on venture or private equity transactions, which often go away once the company completes an IPO of a certain size. Unfortunately under most structures a self-filing would not trigger elimination of these obligations. I hope that was helpful!