An IPO is a defining event; a ReIPO may be transformational…

Often we meet non-U.S. domiciled companies that have undertaken initial public offerings (IPOs) and listed their securities on exchanges that may provide limited liquidity and may not reduce the cost of capital or improve access to future capital. Founders, sponsors, or others may have advocated listing a company’s securities on an exchange in order to create a liquidity opportunity, as well as to provide a “currency” for potential acquisitions or stock-based awards.

However, certain exchange listings may not provide the benefits entrepreneurs traditionally associate with IPOs.

Who said you can only have one initial public offering?

An overview

We provide advice and counsel on the ReIPO, which brings together multiple elements in a single structured approach designed to result in a U.S. IPO or listing on a U.S. securities exchange, with additional sponsorship for the company and enhanced liquidity for the company’s securities.

  • The mezzanine or institutional private placement to U.S. investors completed “at market” by reference to the home country securities exchange trading price (which, generally, will be lower than the valuation that would be ascribed for a similarly situated company listed on a U.S. securities exchange).
  • The rights offering in the company’s home country to existing stockholders, allowing existing stockholders to participate at the same price as the new institutional investors.
  • The U.S. IPO undertaken contemporaneously with the institutional private placement and the rights offering--the company will proceed to undertake an IPO in the United States as an EGC relying on the confidential submission process; the IPO could include a resale component, or subsequent to the IPO, the company may undertake to file a resale for the institutional investors.

Step-by-step analysis

Late stage or “pre-IPO” private placements have become almost a prerequisite to a successful IPO. The company can be introduced to U.S. institutional investors through a late stage private placement. Interest from, and participation by, well-respected U.S. institutional investors will help validate the company, especially in the context of a U.S. IPO. These investors also likely will participate in the company’s U.S. IPO. For these investors, the company’s market price (based on the trading price of the company’s securities on the foreign exchange) will be lower than that associated with a U.S.-based competitor that’s similarly situated. From the company’s perspective, undertaking the institutional private placement prior to incurring the costs associated with a U.S. IPO will be important. The late stage private placement will serve to introduce the company in the United States and test market interest in the company. Also, the marketing process for the late stage private placement will inform the company’s IPO discussions.

Following the entry into definitive purchase agreements with the U.S. institutional investors and the public announcement of the entry into such definitive agreements, the company will proceed to undertake a rights offering to its existing stockholders (these will not include the U.S. institutional investors). Undertaking the rights offering accomplishes a number of important objectives.

Many European jurisdictions have pre-emptive rights, which will be addressed through the rights offering; and the rights offering also will allow all existing stockholders to maintain their proportionate interest thus mitigating any future litigation risk.

Concurrently with securing interest from U.S. institutional investors, the company will commence preparations for a U.S. IPO. Late stage investors will be reassured if they understand that the company’s securities will be listed on a U.S. securities exchange within a pre-identified time period. These investors will want to have insight into the proposed timing and size of the IPO, as well as an understanding of the likelihood of success of the proposed IPO. Many late stage investors have become skeptical about valuations in late stage pre-IPO rounds and have not been able to realize their anticipated gains when the companies have consummated their IPOs

With this approach (completing a private “at market”) for a fundamentally undervalued company, the late stage institutional investors will have greater comfort.

To learn more contact:

Anna T. Pinedo
(212) 468-8179

James R. Tanenbaum
(212) 468-8163

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