How Does an IPO Rebound Affect IPO Alternatives?
By David Feldman at 16 May, 2009, 5:08 pm
There is more and more talk that the IPO market is beginning to wake up. We have had 7 out of the last 9 weeks positive in the stock market. Underwriters’ pockets are beginning to lighten. In the past 60 days Morgan Stanley took two companies public, and Credit Suisse did as well, including Morgan’s much ballyhooed IPO of language company Rosetta Stone, whose stock is up nicely from its IPO price. There is talk among the venture capital community about some smaller underwriters also waking up to take companies out as well.
This is nothing new for the reverse merger, SPAC and self-filing worlds. Each of these can succeed quite nicely even when IPOs are busy. Why? A variety of reasons. A reverse merger is much faster, much cheaper, much less dilutive and involves much less risk of the deal price being changed or shelved at the last minute. SPACs remain a strong alternative to IPOs since they tend to be completed faster than an IPO, and have the assurance of funds in the bank, whereas an IPO underwriter cannot promise with certainty that it can raise the money it says it can. In fact, the hotter the market and IPOs get, often reverse mergers heat up as well, since companies want to be public even faster than with an IPO. This happened rather dramatically during the go-go Internet days of the late 1990s. Even self-filings can be better than an IPO. You do not depend on the state of the markets during the week you decide to go public, as is often the case with an IPO. You can still raise money through a PIPE or other private offering and have a somewhat less intense road show schedule to get it done.
Only cataclysmic market conditions such as those of last fall and the early part of this year, or the period following the terrorist attacks of 9/11/2001 have a real impact on the volume of reverse mergers. A normal down market does not materially impact these alternatives, and a normal up market, with busy IPOs, also does not generally quell the volume of reverse merger deals.
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