Reverse Merger Versus IPO - public shell, reverse merger, SEC filings, IPO, going public, mergers, acquisitions, public shell companies for sale

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Time & Money - IPO vs. Reverse Merger

Initial Public Offering

The other and more common method of going public is through an Initial Public Offering (IPO). The process involves attracting and retaining an underwriter, along with securities lawyers and auditors. A registration statement prepared and filed with federal and state regulators after which the company goes through an extensive review process that may take as long as 6 to 8 months to complete. Following the review process, the company goes on a road show and is presented to brokers and investors. The underwriter seeks subscriptions to purchase the company’s shares. If the subscriptions are sufficient, the underwriting becomes “firm”. The IPO is then closed, the company is public, and the company receives its portion of the offering proceeds.

Here are the typical associated cost and time in doing an IPO:

Legal fees for corporate and underwriter’s counsel, including "blue sky" state registration, costs between $100-200,000.
Audit work must be prepared by an SEC CPA, with historical years, preformed to SEC's SX requirements costs $75-125,000.
Transfer Agent and Filing Fees cost between $20-40,000.
Printing and Road Show costs $50-100,000.
Underwriting sales commissions are typically 10% of proceeds.
Underwriting expenses are typically 4% of the offering proceeds, plus free stock options/warrants.
In addition to third party costs, the company’s CEO and CFO will each spend 700-1,000 hours on the project.
All in all, an IPO takes approximately 12-18 months, start to finish and there is no guarantee of success.
At successful completion the private company is public and fully funded.

The inherent risk of an IPO:

A firm underwriting does not mean that a company has a firm commitment from an underwriter to raise money.
Securities regulators do not allow an underwriting to become “firm” unless the underwriter has 100% or more of the offering subscriptions from investors.
If the market is not buying IPO’s when the offering is ready, or the underwriter is unable to sell the shares, the offering is aborted.
The company will have paid the legal and accounting fees, some underwriting fees, printing and road show costs.
The only costs not incurred are sales commissions and some underwriter expenses.