Alternative to a Conventional IPO

With the Dow Index at record highs, the valuation differential between public and private companies may be wider now than ever. It’s no wonder that private companies consider “going public” to get a valuation boost.

This surge in initial public offerings (IPOs) has been reported by a number of sources including a recent article, “The Hot IPO Market Continues” by Morrison Foerster in its “Jumpstarter” online magazine.


“The first half of 2014 has seen the hottest IPO market in 14 years – 133 IPOs priced, raising more than $30 billion in proceeds. This is already greater than the total number of IPOs priced during 2011 and 2012. The second quarter even included five IPOs that raised more than $1 billion each.”

Many private companies, however, are too small to go public through a conventional IPO.

Today, a company considering a conventional IPO typically plans to issue at least $100 million of new common stock. Given that the new public stock sold is typically no more than 25% to 30% of the company’s total stock, this requires the company to be at least $250 to $300 million in value before the IPO.

There are many private companies that would like to be publicly traded but haven’t gotten to that size yet for a conventional IPO. These companies might be successful as public companies and gain the benefit of a public company valuation.

For these companies, the alternative of merging with another small public company to “go public” may be a solution.

Many company executives upon hearing of merging to become public immediately think of merging with a shell company. While this is a possible method, I recommend merging with a smaller public “operating” company instead.

There are many smaller public operating companies whose stock price would benefit from a merger in order to add value and upside potential.

Careful selection and evaluation by both sides, the public and the private company, is very important.

The stock market reaction to a well-done merger is positive for both sides in the deal.

My colleagues and I at Monarch Bay have experience with these IPO mergers and can assist your company to navigate the process successfully.

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