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Going Public Without An IPO – Direct Listings/De-SPAC/Reverse Merger

An IPO is not the only way for a company to complete a going public transaction. For those companies seeking a different going public route such as a de-SPAC transaction, reverse merger with an OTC market public shell company or direct listing with a national exchange or onto the OTC markets, we have the experience to guide the process.

De-SPAC Transaction

ANTHONY, LINDER & CACOMANOLIS, PLLC has represented both SPACs and targets in de-SPAC transactions. We keep abreast of the ever-changing legal backdrop to the developing SPAC industry from the most recent case law such as Multiplan Corp. Stockholders Litigation (f/k/a Churchill Capital Corp III) and Delman v. Gigacquisitions3, LLC, et al. directed at SPAC sponsor, director and officers’ fiduciary obligations, and the fallout from Garfield v. Boxed, Inc. regarding class voting, to the SEC proposed wide sweeping regulatory changes. Our team understands the business and legal aspects of a de-SPAC transaction giving your team the confidence to move forward.

For an in-depth review on the proposed rule changes, see my six part blog – [Part 1], [Part 2], [Part 3], [Part 4], [Part 5], [Part 6].

Reverse Merger

Over the years, our firm has been one of the most prolific firms in the reverse merger space, having completed over 250 reverse merger transactions in the past 22 years, representing both targets and public shell companies. Although most reverse merger transactions involve an OTC market traded public shell, we also have a depth of experience with reverse merger transactions on the Nasdaq and the NYSE/NYSE American. Importantly, over the years, the reverse merger landscape has changed dramatically.

Our experience goes beyond the basic merger paperwork, such as the merger agreement or share exchange agreement, and SEC filings as needed, such as an S-4; 14A proxy or 14C Information Statement, 14F for change of directors and closing Super 8-K but we also understand what it takes to be successful after closing. In today’s world, it is vitally important to complete a thorough due diligence of the public shell company to ensure that future corporate actions, such as name changes or reverse splits, will clear the arduous FINRA review process. For more on FINRA review of corporate actions, see https://securities-law-blog.com/2023/05/09/changes-to-finras-corporate-action-notification-process/?hilite=finra.

For those public companies that alternatively report to OTC Markets, we assist in ensuring a smooth transition, including complying with OTC markets notification rules for a change of control. We manage expectations, such that incoming officers and directors, and control shareholders are not surprised when OTC markets complete background checks and conduct its own due diligence in the process.

Following a reverse merger with an OTC market shell, most companies are striving to complete an uplisting, and we are there to assist. For more on uplistings including the Nasdaq and NYSE seasoning rules see Uplistings.

When completing a reverse merger with an Exchange listed entity, the participants need to be aware of and comply with the particular rules of the Exchange (Nasdaq or NYSE/NYSE American). When completing a reverse merger with an Exchange, the combined entities must re-apply to trade on the Exchange and meet the more difficult initial listing requirements as opposed to the continued listing requirements. The reality is that when an Exchange traded company is seeking or is open to a reverse merger transaction, it is faces challenges. As such, meeting initial listing requirements often entails completing a re-capitalization such as a reverse split to increase the trading price as well as a potential capital raise to increase the equity and market capitalization.

Moreover, both the Nasdaq and NYSE have shareholder voting rules that are implicated in a reverse merger transaction, including where the acquisition of stock or assets of another company will involve 20% or more dilution to existing shareholders (see https://securities-law-blog.com/2019/03/26/the-20-rule-acquisitions/) or where there will be a change of control of the Exchange listed company ( see https://securities-law-blog.com/2019/04/09/nasdaq-and-nyse-american-shareholder-approval-requirements-change-of-control/).

Direct Listings

Another alternative to an IPO is the direct listing process. Despite evolving rules designed to attract more applicants, the direct listing process onto Nasdaq or the NYSE/NYSE American has so far been slow to gain traction. Only 10 companies had gone public via direct listing as of December 31, 2021, and very few since that time. However, we expect this process to become more popular over time as a result of rule changes allowing for concurrent capital raises and the recent U.S. Supreme Court decision providing guidance in the much-hailed Slack Technologies v. Pirani post direct listing shareholder lawsuit.

Whereas a direct listing onto a national Exchange is not yet commonplace, it is the most common method for going public onto OTC markets (besides a reverse merger). Traditionally, in a direct listing process, a company completes one or more private offerings of its securities and then files a registration statement with the SEC to register the shares purchased by the private investors, which become the company’s initial public float. A company may also complete a Regulation A offering to create public shareholders.

Once a company has public shareholders, either through a re-sale registration statement or Regulation A offering, it can proceed to apply for an OTC market listing and work with a market maker to complete the 15c2-11 process and obtain a ticker symbol from FINRA. In September 2021, the 211 rules and regulations were completely overhauled and as such for those companies that qualify, OTC Markets itself can assist in the 211 review process as part of an OTCQB or OTCQX listing application.

For more on the OTC market direct listing process, see https://securities-law-blog.com/2018/05/08/going-public-without-an-ipo/ and for more on the new 15c2-11 rules, see https://securities-law-blog.com/2020/09/22/the-sec-has-adopted-final-amendments-to-rule-15c2-11-major-change-for-otc-markets-companies/ and https://securities-law-blog.com/2021/08/17/sec-denies-expert-market-for-now/.

Speak With A Securities Attorney From ANTHONY, LINDER & CACOMANOLIS, PLLC, Today

We can help your company go public. Inquiries of a technical nature are always encouraged. Schedule an in-person or virtual consultation by calling 877-541-3263 or visiting our contact page. We look forward to speaking with you.