How to Finance Companies Under $75MM Market Cap?
By David Feldman at 27 April, 2009, 6:12 pm
Very few PIPE deals are getting done these days. But the “registered direct offering,” involving a short-form registration, sale of stock and immediate tradability, is becoming more popular. The problem is, to do this a company has to be eligible for the short form, which requires it to have a market capitalization above $75 million, and to be on a major exchange (ie OTCBB companies never qualify regardless of size). So without many PIPEs, what do smaller public companies do?
An answer some are starting to do: rights offerings. If outside investors aren’t available, how about inside investors? In a rights offering, an SEC- approved disclosure document is given to all current shareholders of the company, who are given the right to participate in an offering of stock. The theory is, who better to go to than those who have already invested? Sometimes a fund or two serves as a “backstop” to cover part of the offering if not taken by the shareholders. Sounds like a win-win. The only problem is time. PIPEs can get done in days or sometimes a few weeks. Getting the registration approved for the rights offering could take several months. Then again, with the SEC overwhelmed quite a number of these registrations are getting “no reviews,” which gets them done fast. But you can’t assume that will happen. Necessity is indeed the mother of invention.
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