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Partners / Investors:
The nature of some of the
investors and bankers in the
microcap industry may not be
the most shareholder
friendly. Choosing the best
partner to take you public and
help you grow as a public
company is VERY
important. Companies
should make the best decision
for the long term vs. looking
for best short term solutions.
Public Expenses:
Public companies are required
to incur additional expenses
(despite they are usually much
less than anticipated) for
audit of financial, legal /
reporting requirements,
insurance, regulatory
compliance and investor
relations programs. These
costs are estimated to cost a
micro-cap company an
additional $200,000 to
$400,000 per annum.
Management Time:
To receive maximum valuation
management must be willing to
participate in public company
events such as investor calls,
earnings calls, company
roadshows, etc. That being
said, management should not be
overly concerned about stock
prices and market information
– focusing on performing
strongly on the business side
will ultimately drive the
market performance as well.
Public Reporting /
Confidentiality:
Companies are faced with
quarterly reporting
requirements and have to be up
to the task of reporting on
time and accurately the
business.
Dilution:
Current owners may have to get
up anywhere from 0.1% to 10%
of the equity in the business
just to acquire the shell.
Liquidity:
Unless you choose the right
partner and structure there
may be less immediate
liquidity in the stock vs.
going public a traditional
IPO.
Shell Liability:
Companies should verify and
run a full due diligence
process on the public shell
company with which they choose
to merge with. Any existing
liabilities or lawsuits of the
public entity would soon be
liabilities and lawsuits of
the new public entity post
reverse merger.
Management Liability:
More
company visibility brings a
higher level of liability
exposure and management must
be willing to abide by the
full disclosure policies.
Ultimately, this is a very
positive thing for both
management and investors as it
increases the costs for
dishonesty!
Taint of Industry:
In the past, reverse mergers
where tainted by the larger
investment banks commenting on
their lack of credibility,
etc. (suggesting the high fee
based IPOs where always better
regardless of market). This
stigma on the reverse merger
industry has been reduced
greatly over the last couple
of years as more and more
companies have chosen the
reverse merger process. In
the last two years the
industry has seen a number of
the larger firms also choosing
the reverse merger route as a
quick and viable method of
going public.
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