For many private companies, “going public” immediately means one thing: an IPO. An IPO may be the most familiar route to the public markets, but it is not the only one. Depending on the company, its objectives and the circumstances, other paths may fit better.
The main routes
- Traditional IPO. The company registers an offering with the SEC, sells shares to the public and lists on an exchange such as Nasdaq or the NYSE.
- Direct listing. The company lists its existing shares on an exchange without a traditional underwritten offering.
- Business combination with an existing public company. A private company combines with a company that is already listed, sometimes called a reverse merger.
- Business combination with a SPAC. A private company merges with a special purpose acquisition company that has already raised money in its own IPO.
- Regulation A offering. A company raises capital from a broad investor base under a streamlined SEC framework, without a full IPO.
- Private placements under Regulation D. Still the largest source of capital for private companies, by a wide margin.
For the latest SEC numbers on each of these markets, see SPACs Are Now More Than Half of All IPOs.
Getting listed is only part of the story
From the outside, a business combination can sound straightforward: a private business combines with a listed company and gains access to the public markets. In practice it is considerably more involved. It typically requires negotiating the merger agreement and related agreements, structuring the combined company, preparing SEC filings and shareholder materials, and meeting exchange listing and shareholder approval requirements, often alongside a financing.
That is why the public-market strategy cannot be separated from the corporate structure, the financing, SEC disclosure, shareholder approvals and exchange rules that make the transaction possible.
There is another side to the equation
These transactions are not relevant only to private companies looking for a way in. For an existing small-cap public company, a strategic business combination can represent an entirely new chapter for the company and its shareholders. Being listed can create strategic possibilities that go beyond raising capital.
The right structure depends on the company
Whichever route is being considered, management teams should start thinking about public-company readiness well before the transaction itself: corporate structure and governance, disclosure, capitalization, existing agreements, regulatory requirements and the ability to operate under the obligations that come with being public.
You can see examples of different routes in our case studies, including a direct listing on Nasdaq and a reverse merger with a concurrent PIPE.
Questions about your own situation? Talk to us.
This article is provided for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship.