You want to take your business public. The trouble is, you’re not a $25 million player and you know a lot of bankers won’t touch an IPO if you’re not rolling with the big boys. So do you have any alternatives?
As it turns out, yes. Gregg Jaclin, a securities attorney at Szaferman Lakind at 101 Grovers Mill Road, helps small-cap companies go public all the time. It doesn’t matter if you don’t have a big bankroll, he says. Nor, really, if you have any bankroll at all.
Jaclin will be part of the Mid-Jersey Chamber’s “Alternative Capital in Today’s Marketplace” breakfast forum on Tuesday, May 13, at 8 a.m. at the Westin Princeton. He will join Michael Schreck, managing director of Reserve Capital Group; fellow Szaferman attorney Eric Stein; and accountants James Bartolomei and Michael Pucciarelli of Hill, Barth & King. Cost $35. Visit www.midjerseychamber.org.
Jaclin, a former sports attorney, grew up in Monmouth County, where his parents — school teacher mom and accountant dad — still live. He earned his bachelor’s in politics and government from the University of Maryland in 1992 and his J.D from the Cardozo School of Law (Yeshiva University) in 1995.
Fresh from law school, Jaclin joined with fellow Cardozo graduate Richard Anslow to run Anslow & Jaclin, a boutique services law firm that specialized in sports law. But Anslow, a former tax attorney, had a background in securities and finances and Jaclin started working in the arena about 15 years ago. Last year he split with Anslow and joined Szaferman Lakind to operate its securities practice.
More than IPO. One of the myths business owners have about going public, Jaclin says, is that you must do an initial public offering. And this is understandably intimidating. Doing an IPO requires lots of capital and lots of negotiation. It also takes about a year before it goes through.
But companies looking to go public have other options, namely a reverse merger. This, Jaclin says, is when a company merges into a company that is already public. The existing public company can be fully operational or, as it is commonly, a shell — a company that has shareholders, but minimal assets. Reverse merging with public shells makes investing quicker and simpler.
Jaclin and others like him do not see the deals through, but he does introduce companies looking to go public with companies open to reverse mergers. “We’ll introduce companies to four or five investors,” he says. He also navigates business owners through all the paperwork.
The upside of public. The key selling point for going public, Jaclin says, is that doing so puts you in closer proximity to more capital and investors. Capital raised from offering stocks can pay for research or pay off existing debts, and the raised public profile can be attractive to people looking to invest.
IPOs are typically done as a way to raise a lot of capital in one major move, but if you enter the publicly traded world through a reverse merger, Jaclin says, there is still the benefit of having your company traded on the stock exchanges and opening yourself up to a world of investors.
The upside of alternative. Going public through a reverse merger can be expensive — think $300,000 — but the pjrocess is generally smoother than an IPO, Jaclin says. “The reason to do a reverse merger is the timing,” he says. “You can call me and say I want to go public right now. It can be just a couple weeks.”
Jaclin looks for a business plan, revenue projections, and other financial statements that show a company can withstand the rigors of a reverse merger. “I need to show those things to small-cap investors,” he says.
Another plus to reverse mergers is that there is no minimum revenue required. “You can be an early-stage company with something you came up with yesterday,” Jaclin says. This, he adds, is a great benefit in Mercer County and the Princeton-to-New Brunswick corridor, where early-stage biotech firms abound.
It’s still going public, though. Just as many people believe that IPOs are the only ticket to the public arena, Jaclin says, many people believe that once they’re publicly traded, everything will be just great. Sometimes it works out that way. “I’ve found that if the company does what it says it’s going to do, the money will find them,” he says.
But sometimes it doesn’t work out that way. “Everyone thinks it’s magic,” he says. Yes, you get easier access to more capital, but whether any of it comes in depends greatly on your stock’s liquidity. In other words, just because you’re public doesn’t mean your stock will sell. It just means you’re closer to the pool of money, but not necessarily swimming in it.
The other thing to remember, Jaclin says, is that regardless of how you get public, you’re still a publicly traded entity. That means you need to do all the same filings and all the same paperwork, albeit on a smaller scale than an IBM or Microsoft. You also still need to disclose everything you do. “A lot of people are surprised by that,” Jaclin says. “They find out they can’t pay for the car out of company funds.”
Other surprises generally come when companies get into the public and find that the market is not what they thought it would be, Jaclin says. And the cost of complying with changing regulations, particularly in the wake of Sarbanes-Oxley can be steep, even for small public companies. And those costs are almost certain to not go down.
Still, if being a public company is a good idea for you, then Jaclin wants you to know that you have alternatives. “People need to realize that there are other ways than IPOs to go public,” he says. “A lot of people don’t That’s why we’re trying to educate them about this.”