Tip of the Week: When does a self-filing make sense?
The following definition is taken from my book: a self-filing is the process by which a private company may seek a public trading market for its securities without an IPO or a reverse merger, by completing its own filings with the SEC either to resell securities held by shareholders or to voluntarily become a reporting company. The company assumes the obligation of filing quarterly and annual reports and becomes subject to proxy and other rules.
Self-filings can be attractive because they do not require a shell or need to wait on the IPO market; there are no problems associated with due diligence; and the company does not give up any of the company’s equity. When deciding to do a self-filing take a look at the following 3 questions.
1. Does the private company already have a large shareholder base?
- A company with a strong shareholder base reduces the need of a shell that already has shareholders and can be a good candidate for a self-filing.
- Self-filings can be easier than reverse mergers when the company has more than 35 shareholders who do not meet the “accredited investors” test.
2. Can the private company take care of its own financial needs during the lengthy self-filing process?
- Self-filings make sense for companies that can defer new financing until the process is complete. This could take anywhere from 5 to 8 months or in some cases even longer. This compared to an average of 3 months to complete a reverse merger with a shell.
- Whatever amount of time one thinks it will take to complete a self-filing, multiply that by 150 percent.
3. Does the private company have on tap a capable investment bank or Wall Street advisor to help “build” a public company from the private one?
- Members of senior management should have significant Wall Street experience, or the company should engage a capable investment bank or financial consultant to walk it through the process because of the “do-it-yourself” nature of self-filings.
No company should attempt a self-filing without a group on board that can build a team that is competent and works well together.
Labels: Tip of the Week
posted by David N. Feldman at
3/19/2008 02:03:00 PM
2 Comments:
Mr. Feldman, you mentioned to me to check out your blog, so here I am!
I realize a self-filing can take quite some time to complete, but is there an actual time limit?
(and speaking of reverse mergers or mergers in general, what do you think is the next step in the JPM-BSC debate?)
Thanks,
The main challenge with a self-filing is timing. When you complete a reverse merger with a shell, the timing is entirely in control of the parties, there is no regulatory involvement prior to closing. A self-filing requires obtaining SEC approval of your registration statement, which may or may not be a quick process. They can continue to comment on a registration for as long as they feel their comments are not adequately addressed. Plus with each new set of comments, the lawyers, auditors and company management must ensure that they move rapidly to respond. Sometimes delays result from accountants being unwilling to move on an issue that the SEC disagrees with them on. Other times management takes a long time to put together changes in business disclosure. That said, I have done these in as fast as two months, but worked on one that took over a year.
As to my friends at Bear Stearns, I'm sure the people I know there will either remain or land comfortably somewhere. I have to believe that Jamie Dimon fully understood his $2 offer was not to be his last (as the trading has reflected), as many shareholders, who have to vote on the deal, are asking themselves whether they are better off in bankruptcy than accepting a $2 a share offer. The fascinating part was the intense involvement of the Federal Reserve, setting an interesting precedent for the future. But I'm just a humble armchair observer of these fascinating developments.
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