The phenomena of private companies going public through a process known as Reverse IPO, Reverse Takeover, Reverse Merger or Back Door Listing, is widespread, and on the Tel Aviv Stock Exchange it seems that more companies are opting to purchase existing listed companies rather than going for an initial public offering.
While the reverse IPO may impose the stigma of “not being good enough”, and ultimately being more costly than taking Main Street– there are some very strong arguments in favor of the “back door”, mostly obvious but some only known to experienced players in this field.
Preparing for an IPO takes six months, costs hundreds of thousands of Dollars, and comes down to the last two weeks of hustling to secure the necessary subscriptions to make the criteria. If the prospects aren’t good the company may revaluate, reduce the price per share, and even call off entire ordeal at the buzzer. Hence the advantages of “back door” listing:
Reverse IPOs avoid uncertainty by neutralizing the risk of failing to complete the IPO process. Failing to complete an IPO will have a detrimental effect on the company and in severe cases could even cause it to cease to exist.
Reverse IPOs give the company the liberty of raisingany amount of capital it needs rather than having to raise the minimum amount required by the criteria set by the bylaws and guidelines of the stock exchange.
These advantages can be substantial to some companies, but are particularly important to “smaller” companies that at the beginning of the process find themselves in the dark about the success of the IPO.
But the list doesn’t end there. The reverse IPO can also carry some other significant advantages compared to Main Street listing, but the intriguing nature of these make them too complex to explain in a short blog post.
Ran Dimant is a Founding Partner of Katzenell Dimant and provides strategic and practical legal advice to corporations, institutions and business initiatives, addressing all aspects of their activity.
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