The State of the Market for Reverse Mergers and Other Alternative Public Offerings

The demand by companies seeking to access U.S. capital markets through going public has continued to grow over the last decade, in spite of such events as stock market bubbles, a “great recession” and continuing consolidation in the investment banking industry.  Companies with solid business plans continue to require capital to develop and mature into self-sustaining companies – which often cannot be accessed through traditional seed capital sources or bank financing.  And statistics bear out the reality that most businesses, even those with strong business plans, will never qualify for traditional venture capital financing.

Many companies have sought to access public markets through what is often referred to as an “alternative public offering,” a label used to describe a number of different financing techniques employed by companies and capital providers to take privately held companies to the public markets without a traditional underwritten public offering – with varying degrees of success.  These routes have taken a number of forms, including “reverse mergers” with a dormant a “shell” public company, “self-underwritten” initial public offerings, through newly formed shell companies, or directly to the public market without a “shell.”  In some cases these routes are preceded or accompanied by a private placement to investors.

However, access by private companies to the public market through alternative public offerings has become increasingly difficult due to a number of factors, including changes in SEC and FINRA rules, recent changes in listing requirements for companies hoping to list on a national exchange such as Nasdaq, AMEX or the NYSE, and more stringent requirements by broker clearinghouses for the resale of shares by investors.  This challenging environment places a premium on having the right advisors, not only to guide it through the capital raising process, but also to advise it on alternative or parallel strategies, such as a sale of the business, joint ventures or licensing arrangements.

I recently attended an industry conference in NYC, which addressed the state of the market for alternative public offerings.  While there was uncertainty as to the precise shape and form that alternative financings will take in the coming months and years, it is clear that as a result of recent changes in securities laws and national exchange listing rules, increased FINRA oversight and changes in practices by broker clearinghouses, the need for competent advice by both financial and legal advisors is more necessary than ever in order to navigate the increasing number of complexities of accessing public markets through alternative public offerings.

In the coming weeks and months I look forward to blogging at greater length to illuminate some of the bumps in the road to going public for smaller companies, as well as alternative fundraising techniques such as crowdfunding – created by Congress under the recently enacted JOBS Act – which may provide a useful financing tool for start-ups and early stage ventures, and single project financings such as film financings.

About the Author – Samuel S. Guzik is a corporate and securities attorney and business advisor admitted to practice before the SEC and in New York and California, with over 30 years of experience. During this time he has represented a number of public and privately held businesses, from startup to exit, concentrating in financing startups and emerging growth companies.  For additional information regarding Mr. Guzik and his firm, Guzik & Associates, please visit his website at

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