Balmoral Is Your Bridge

Many entrepreneurs have found going public to be exceptionally rewarding - both for their companies and for themselves.
Going public can open a door to at least four benefits and opportunities. These include:

1. Access capital to develop and grow:
This is perhaps the most obvious benefit of going public. Proceeds from an offering can be used to hire more employees, expand sales, marketing and distribution efforts, build a new factory, purchase more machines, develop new products, etc.

Public companies usually have a higher valuation than equivalent private companies, so companies can sell less equity to raise the money they need. In addition, it may be easier and faster to raise money as a public company since many investors have a preference to invest in stocks that can be traded on a stock exchange.

2. Facilitate mergers and acquisitions:
Private companies have a difficult time when trying to acquire other companies. Their stock is not liquid and has no easily determinable value to offer other companies. As a result, they often resort to drawing on credit lines or raising private placement money to be able to consummate acquisitions.

Public companies are traded on a stock exchange. They have liquidity and an easily determinable stock price that establishes a value for them to initiate acquisitions.

3. Enhanced corporate image:
Public companies can enhance their corporate image by being public. The increased visibility can result in broader customer and investor awareness which indirectly can assist the sales and financing of your company.

4. Ability to attract high quality employees:
Public companies can utilize stock option incentives to both lure difficult people to get and as an incentive to keep employees they already have. Stock option plans are popular compensation plans that are valued by both public companies and their employees.

Two ways for a Private company to go public:
1. An Initial Public Offering (IPO), or
2. A merger with an existing public company commonly referred to as a Reverse Merger.

Did you know Turner Broadcasting, Blockbuster Video and Waste Management all became public through reverse mergers?

What is a Reverse Merger?
Merge your Private Company with an existing public "shell".

A common method used by small and mid cap companies to go public is the purchase and/or reverse merger into an existing public company or a subsidiary of a public company. In a reverse merger, an operating private company merges with a public company which has no assets or known liabilities (the "shell" corporation). The public corporation is called a "shell" since all that exists of the original company is its corporate shell structure and shareholders.

The private company obtains the majority of the shell's stock (usually 80%) if it is trading usually less. The private company normally will change the name of the public corporation (often to its own name) and will elect its Board of Directors which will appoint the officers. The new public corporation will usually have a base of shareholders sufficient to meet the 300 shareholder requirement for admission to quotation on the NASDAQ SmallCap Market (Bulletin Board) or on the OTC Bulletin Board.

The advantages of public trading status, which are outlined in greater detail below, notably include the possibility of commanding a higher price for a later offering of the company's securities. Going public through a reverse merger allows a private company to go public typically at a lesser cost and with less stock dilution than through an initial public offering (IPO). While the process of going public and raising capital is combined in an IPO, in a reverse merger (also know as a "blind pool" merger) these two functions are unbundled; a company can go public without raising additional capital. Through this unbundling operation, the process of going public is simplified greatly.

The private company which has gone public obtains the benefits of public trading of its securities, namely:

• Increased liquidity of the ownership shares of the company
• Higher share price and thus higher company valuation
• Greater access to the capital markets through the possibilities of a future stock offering
• The ability of the company to make acquisitions of other companies using the company's stock
• The ability to use stock incentive plans to attract and retain key employees
• Going public can be part of a retirement strategy for business owners
  

The benefits of going public through a reverse merger, as opposed to an IPO, are the following:

• The costs are significantly less than the costs required for an initial public offering
• The time required is considerably less than for an IPO
• Additional risk is involved in an IPO in that the IPO may be withdrawn due to an unstable market condition even after most of the up-front costs have been expended
• IPOs generaly require greater attention from top management
• While an IPO requires a relatively long and stable earning history, the lack of an earning history does not normally keep a privately-held company from completing a reverse merger
• The company does not require an underwriter
• There is less dilution of ownership control
• You will receive a higher valuation for your company
  

Requirements prior to entering into a reverse merger are the following:

• A private company will require approval of the majority of its stockholders for a merger with a public corporation

Once a company is taken public through a reverse merger the financial markets hold the following future prospects in the capital markets for the newly public corporation:

• The market value of a public company is often substantially higher than a private company with the same structure in the same industry
• Capital is easier to raise for public companies because the stock has market value and can be traded
• The public trading price of the public company's securities serves as a benchmark for the offer price of a subsequent public or private securities offering
• Acquisitions can be made with stock since publicly traded stock is viewed as currency for mergers and acquisitions
• Form S-8 stock can be issued for officers, directors and consultants
• If the stock dividend distribution included warrants, the new company can receive proceeds from the exercise of those warrants if the trading price of its common stock exceeds the exercise (strike) price of warrants.