Much has been written about when a business should go public and the considerations that inform that choice. Assuming the decision to go public has been made, second in importance to that determination is how a private company (PrivateCo) should go public.
In general, two routes exist for a PrivateCo to go public—an initial public offering (IPO) of securities or a negotiated reverse merger transaction (RMT) with an existing public company. The IPO process centers on the creation of a public company from a PrivateCo. An IPO may be accomplished by either a marketed listing of securities of PrivateCo or a direct listing of PrivateCo's securities on a stock exchange. Alternatively, a RMT involves the acquisition of a PrivateCo by an existing public company (typically a shell or inactive company), resulting in the shareholders of the PrivateCo ultimately owning a majority of the shares of the resulting public issuer (resulting issuer), which subsequently carries on the business of the PrivateCo. A RMT may be accomplished by one of three means: (1) an acquisition of PrivateCo (a QA or qualifying acquisition) by a special purpose acquisition corporation (SPAC), (2) an acquisition of PrivateCo (a QT or qualifying transaction) by a capital pool company (CPC), or (3) a reverse takeover (RTO) of an existing public company.
Here we compare the main elements to be considered by a PrivateCo in evaluating going public by way of an IPO, SPAC, CPC or RTO. Our Routes to the Public Markets in Canada guide contains additional detail on the advantages and disadvantages of, principal components of, and the process to implement going public by way of an IPO, SPAC, CPC and RTO.
IPO |
RMT |
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SPAC |
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RTO |
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Perception |
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Timing |
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Stock |
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Size |
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Pricing & Marketing |
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Costs |
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Process |
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Disclosure |
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Reviewing Authorities |
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Sponsorship |
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Due Diligence/ |
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Director, Management |
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Other |
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1 From preliminary prospectus drafting to close of IPO.
2 From Letter of Intent between SPAC shell and PrivateCo to closing of QA.
3 From Letter of Intent between CPC shell and PrivateCo to closing of QT.
4 From Letter of Intent between RTO issuer and PrivateCo to closing of RTO. Although a RTO can be completed in 3 to 4 months, the process more often takes up to 6 months.
5 Costs include legal advisors (for PrivateCo and, if applicable, the listed issuer), auditors, financial advisors/underwriters, sponsors, other industry experts (oil and gas, mining), exchange listing fees, securities filings, transfer agent, roadshow costs, investor relations fees, printing and mailing, director and officer liability insurance.
The going public process is complex and involves many considerations in addition to a decision as to the route to the public markets, including when a business should go public, the applicable securities laws and stock exchange listing requirements applicable to a going public transaction, business considerations (i.e., management, the needs of the business, including the financial requirements of the business, etc.), whether a financing / marketing is necessary to complete a going public transaction, and ongoing securities and stock exchange listing requirements once public. It is important that a PrivateCo engages and consults with legal counsel, professional auditors and financial advisors early in the go public process.
The Bennett Jones Capital Markets group can assist with creating and identifying a strategy that is best suited to the business (including identifying challenges to be addressed), with the ultimate objective being the completion of a successful and efficient go public transaction.