Lynne Bolduc of FKBR Legal Presented the Current State of the IPO Market at the 2023 Planet MicroCap Showcase
June 6, 2023
The Planet MicroCap Showcase recently hosted a panel titled, “IPO, SPAC or Reverse Merger and At-The-Market, Registered Direct Offerings or a PIPE?” Lynne Bolduc of FitzGerald Kreditor Bolduc Risbrough LLP appeared on the panel to discuss the current state of the IPO market.
Watch the Panel Here: https://youtu.be/evc2H7Tz9UI
Lynne’s Key Points Made During This Presentation:
There are two types of IPOs: best efforts and firm commitment.
The Engagement Agreement is not the Underwriting Agreement.
Bridge financing may be needed.
The IPO window is opening after the IPO winter.
A company needs to be flexible during the IPO process.
There are challenges with getting IPOs listed on a stock exchange.
A regular way IPO is still the holy grail for a private company wanting to go public.
Lynne Shared This Advice:
Have enough money.
Have some shareholders.
Be flexible.
Be prepared.
If you want to go public, the process started yesterday, not tomorrow.
Planet MicroCap Panel 2023 – Lynne’s Presentation
I have been representing microcap companies in their IPOs since 1996. The process really hasn’t changed much, while the market has gone up and down.
An IPO “regular way” is a company’s first public offering of its securities with an underwriter with a listing of those securities on a stock exchange. A regular way IPO has been the most prevalent way to go public for decades.
A. There are two types of IPOs: best efforts and firm commitment.
Best efforts: You get what you get.
Firm commitment: Can be misunderstood. Not a guarantee. The underwriter will assess market conditions throughout the process and make adjustments accordingly and then go a road show approximately two weeks prior to launch to market the offering.
The initial Engagement Agreement with the underwriter is not the Underwriting Agreement which is the final agreement to purchase the shares.
B. Bridge Financing: A small private offering designed to provide enough money to bridge a company’s working capital needs until the IPO. A bridge financing is often debt convertible into stock in the IPO at a discount. A bridge financing is not guaranteed.
C. As you all know, the stock market has been volatile over the last 18 months. But experts are now saying that the IPO window is opening after the IPO winter. Regardless, a company needs to be flexible during the IPO process. Once you have filed your documents with the SEC but before you launch the IPO (called going effective), the underwriter will assess market conditions and the potential appetite for your company’s shares. The underwriter may ask the company to go through some gyrations. Some recent gyrations I have seen are:
Adding one or more warrants as sweeteners.
Reverse stock split for valuation purposes.
Divesting of CEO shares/registration of selling shareholders for stock exchange purposes.
Decreasing the offering amount.
Lowering the per-share price.
As you move through the process, remember the goal is to get there; once you are public, you have options and currency in the form of stock.
D. Stock Exchange Challenges: Nearly all small company IPOs list their shares for trading on the Nasdaq or NYSE American stock exchange.
Change in policy: widespread distribution needed after extreme trading price swings in thinly distributed IPOs last year. Both exchanges have adopted policies, Nasdaq really adhering to the new policy causing some companies to list on the NYSE American.
Nasdaq requires $15 million of public equity meaning non-affiliated unrestricted shares. With the smaller offering sizes recently, this has become a challenge as if the IPO is only selling $10 million worth of stock, we need to find $5 million more. That’s the reason for the divestitures/registration discussed previously.
Nasdaq requires 300 shareholders/NYSE American requires 400 shareholders. That’s a lot.
E. A regular way IPO is still the holy grail for a private company wanting to go public because:
No one knows market conditions in real time better than a banker.
The underwriter does all of the work to sell the securities.
The company and the underwriter’s interests are aligned; they both want to get the deal done.
F. Advice
Have enough money to get through the process which can take several months. Not only does a company need to pay its regular expenses but there will be other expenses for the IPO.
Have some shareholders.
Be flexible.
Be prepared. Have your books and records in order, this makes a significant difference in the timing and expenses. If you want to go public, the process started yesterday, not tomorrow.
