International and US IPO Planning E-Book

Frederick D. Lipman

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 356

Veröffentlichungsjahr: 2008

Beschreibung

Praise for International and U.S. IPO Planning "Perhaps the greatest value of Frederick Lipman's new book on initial public offerings derives--as its title indicates--from the emphasis that it places on planning. Lipman makes abundantly clear that an IPO is not something to be rushed into by every fledgling firm, as was typical during the dot.com boom of the late 1990s. Indeed, his extensive treatment of the many aspects of preparing a company for an IPO, particularly the non financial aspects, helps the reader to focus on the most important question of all: Is an IPO appropriate for a given company? Somewhat uniquely, Lipman then asks the further question of whether an international IPO might be appropriate for that company even if a domestic one were not. By doing so, he has made a real contribution to this literature."--Kenneth C. Froewiss, Clinical Professor of Finance, NYU Stern School of Business "We are operating in a global environment in nearly every aspect of business, and structuring/planning for an IPO is no different. The recent changes in regulations for U.S.- listed companies have raised the cost of access of U.S.-listed IPO capital, making foreign exchanges much more attractive. Fred Lipman has created a wonderful guide for managers to seriously access this option for their business. I also hope his book is a wake-up call to U.S. regulators on their impact on the competitiveness of U.S. securities markets."--Bob Hellman, Managing Partner & CEO, American Infrastructure MLP Funds "This book will be of immense value to the companies planning an IPO. I am particularly struck by the research done by the author, which, in my opinion, makes it an authentic guide for private companies not only in the U.S. but also in Asia, particularly India and China, where a huge opportunity awaits companies to mature into sustainable enterprises by involving a large section of society in their IPO."--M.K. Chouhan, Chairman, Mahendra & Young Knowledge Foundation, and Vice Chairman of Global Advisory Board, Asian Centre for Corporate Governance "This book contains valuable suggestions for advanced planning for both U.S. and international IPOs and belongs in the library of every entrepreneur and business executive."--William C. Tyson, Associate Professor, Legal Studies, The Wharton School of the University of Pennsylvania 8 crucial steps to planning a successful IPO International and U.S. IPO Planning outlines the eight step-by-step techniques all private companies must follow to prepare for a successful IPO, either in the U.S. or internationally. From advance planning techniques for both an international and U.S. IPO, to growing a business through acquisitions and "roll-ups" prior to an IPO, to deterring unwanted suitors by inserting carefully placed provisions into the charter, and so much more, International and U.S. IPO Planning provides a wealth of practical and insightful guidance to help the private company go public, regardless of its size or location.

Leseprobe

Table of Contents

Other Works by Frederick D. Lipman

Title Page

Copyright Page

Dedication

Acknowledgements

Introduction

NOTES

Chapter 1 - Pros and Cons of a U.S. IPO

UNDERWRITER SPREADS AND UNDERPRICING

IPO OFFERING EXPENSES AND POST-IPO COMPLIANCE EXPENSES

INCREASING COMPETITION TO U.S. IPO MARKETS

COMPETITION SOURCES

RULE 144A IPOS

SMALL-CAP IPOS

PROBLEMS OF SMALL-COMPANY IPOS

SEC’S ROLE

ACCOUNTING COSTS IN THE UNITED STATES VERSUS INDIA

WHY ARE U.S. ACCOUNTING COSTS SO HIGH?

DEMISE OF ARTHUR ANDERSEN LLP

MORE RIGOROUS AUDITING AND MATERIALITY STANDARDS

GREATER COMPLEXITY OF U.S. GAAP

SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002

HOW TO IMPROVE THE COMPETITIVENESS OF THE U.S. CAPITAL MARKETS

NOTES

Part One - Advance IPO Planning

Chapter 2 - Develop an Impressive Management and Professional Team

DEVELOPING INTERNAL ACCOUNTING EXPERTISE

COMPENSATION PACKAGES FOR THE MANAGEMENT TEAM

OVERVIEW OF EQUITY INCENTIVES FOR KEY EMPLOYEES

RESTRICTED STOCK VERSUS SARS OR PHANTOM APPRECIATION PLANS

PHANTOM PLANS

ISOS VERSUS NON-ISOS

ADVANTAGE OF ISOS

NON-ISOS WITH TAX REIMBURSEMENT

TAX BENEFIT TO THE COMPANY

SECTION 409A

NOTES

Chapter 3 - Grow the Company’s Business with an Eye to the Public Marketplace

INTERVIEWING POTENTIAL UNDERWRITERS

HOW LARGE MUST THE COMPANY BE TO QUALIFY FOR AN IPO?

SHOW EARNINGS OR REVENUE GROWTH BEFORE THE COMPANY GOES PUBLIC

ROLL-UPS AND OTHER ACQUISITIONS

STRATEGY OF ROLL-UPS

PRIVATE COMPANY ROLL-UPS

MEETING IPO SIZE REQUIREMENTS

COST EFFICIENCIES

MULTIPLIER EFFECT

SIMULTANEOUS OR POOF ROLL-UPS

COMMON MISTAKES IN ROLL-UPS AND OTHER ACQUISITIONS

VENTURE-BACKED IPOS

NOTES

Chapter 4 - Obtain Audited or Auditable Financial Statements Using ...

INTERNAL CONTROLS AND SYSTEMS

USING IPO-ACCEPTABLE ACCOUNTING PRINCIPLES

REVENUE RECOGNITION

NOTES

Chapter 5 - Cleaning Up the Company’s Act

IPO DEAL KILLERS

U.S. FOREIGN CORRUPT PRACTICES ACT OF 1977 AND SIMILAR INTERNATIONAL LAWS

RECENT EXAMPLES OF VIOLATIONS OF FOREIGN BRIBE PROVISIONS

NOTES

Chapter 6 - Establish Antitakeover Defenses

PLACE ANTITAKEOVER PROTECTIONS IN THE CHARTER

STAGGERED TERMS FOR DIRECTORS

CREATING AUTHORIZED COMMON STOCK AND BLANK CHECK PREFERRED STOCK

TWO CLASSES OF STOCK

OTHER ANTITAKEOVER PROTECTIONS

NOTES

Chapter 7 - Develop Good Corporate Governance

SELECT THE COMPANY’S OWN INDEPENDENT BOARD MEMBERS

WHO IS AN INDEPENDENT DIRECTOR?

CHAIR OF THE BOARD

BOARD COMMITTEE STRUCTURE

AUDIT COMMITTEE

COMPENSATION COMMITTEE

WHISTLEBLOWER POLICY

INTERNAL CONTROLS

ENTERPRISE RISK MANAGEMENT

NOTES

Chapter 8 - Create Insider Bail-Out Opportunities and Take Advantage of IPO Windows

SUBCHAPTER S AND OTHER TAX FLOW-THROUGH ENTITIES

OTHER INSIDER BAIL-OUT OPPORTUNITIES

TAKING ADVANTAGE OF IPO WINDOWS

NOTES

Part Two - International IPOs

Chapter 9 - Structuring an International IPO

SELECTING AN INTERNATIONAL EXCHANGE FOR AN IPO

AVOIDING SOX

FOREIGN PRIVATE ISSUER

IPOS ON AIM

OTHER EUROPEAN EXCHANGES

HONG KONG STOCK EXCHANGE

SHANGHAI STOCK EXCHANGE

TORONTO STOCK EXCHANGE AND TSX VENTURE EXCHANGE

SURVEY

SMALL AND MEDIUM ENTERPRISES MARKETS

NOTES

Chapter 10 - U.S. Income Tax Considerations in Establishing or Migrating a ...

“CORPORATE INVERSIONS”: MIGRATION OF AN EXISTING U.S. CORPORATION TO FOREIGN JURISDICTIONS

PASSIVE FOREIGN INVESTMENT COMPANY AND CONTROLLED FOREIGN CORPORATION ISSUES

NOTES

Part Three - Traditional and Nontraditional IPOs in the United States

Chapter 11 - Traditional U.S. IPOs

COMPANY VALUATION

LETTER OF INTENT

TYPES OF UNDERWRITINGS

COST OF A TRADITIONAL IPO

DUE DILIGENCE

PRESS RELEASES AND PUBLICITY

MAJOR IPO PARTICIPANTS AND TIMETABLE

PROSPECTUS

REGISTRATION PROCESS

STATE SECURITIES LAWS

ROAD SHOWS

PRICING MEETING

EXECUTION OF UNDERWRITING AGREEMENT, LOCK-UP AGREEMENTS, AND EFFECTIVE DATE

DIRECTED SHARES

CLOSING

NONTRADITIONAL IPOS

Chapter 12 - Reverse Mergers into Public Shells

MECHANICS OF REVERSE MERGERS

ADVANTAGES OF A REVERSE MERGER

DISADVANTAGES OF A REVERSE MERGER

OTHER CONSIDERATIONS

ALTERNATIVE TO REVERSE MERGER

SEC REGULATION OF BLANK-CHECK COMPANIES: RULE 419

NOTES

Chapter 13 - Using a SPAC to Go Public

INTRODUCTION

WHAT IS A SPAC?

BUSINESS COMBINATION PROCESS

NOTE

Chapter 14 - Regulation A: $5 Million Offering

TESTING THE WATERS

WHO CAN FILE UNDER REGULATION A?

BAD BOY DISQUALIFICATION

HOW MUCH MONEY CAN BE RAISED?

OFFERING STATEMENT AND OFFERING CIRCULAR

OUTLINE OF REGULATION A

Chapter 15 - SCOR: $1 Million Do-It-Yourself Registered Offering

FEDERAL REGISTRATION EXEMPTION

STATE SECURITIES LAWS

NOTES

Appendix A - List of International Stock Exchange Web Sites

Appendix B - Responses of International Exchanges to IPO Survey

Index

Other Works by Frederick D. Lipman

Executive Compensation Best Practices

Corporate Governance Best Practices: Strategies for Public, Private, and Not-for-Profit Organizations

Valuing Your Business: Strategies to Maximize the Sale Price

Audit Committees

The Complete Guide to Employee Stock Options

The Complete Guide to Valuing and Selling Your Business

The Complete Going Public Handbook

Financing Your Business with Venture Capital

How Much Is Your Business Worth

Going Public

Venture Capital and Junk Bond Financing

Copyright © 2009 by Frederick D. Lipman. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

Lipman, Frederick D. International and US IPO planning : a business strategy guide / Frederick D. Lipman. p. cm. Includes index.

eISBN : 978-0-470-47867-7

1. Going public (Securities)-United States. 2. Corporations-United States-Finance. 3. Going public (Securities) 4. Corporations-Finance. I. Title. HG4028.S7L57 2009 658.15’224-dc22 2008029057

To my partners at Blank Rome LLP, who gave me the time to write this book

Acknowledgments

The author wishes to acknowledge the assistance of the following attorneys at Blank Rome LLP and its Hong Kong subsidiary in preparing this book: Yelena M. Barychev, Esq., Nigel J. Binnersley, a Hong Kong solicitor, Tim Drew, a Hong Kong solicitor, Joseph T. Gulant, Esq., Raanan Persky, an Israeli attorney and a foreign legal consultant in Pennsylvania, Brad L. Shiffman, Esq., Jane K. Storero, Esq., Jeffrey M. Taylor, Esq., and Ted Tang, a Hong Kong trainee solicitor. Ann Margrete Ringheim, a Norwegian attorney, also was helpful in preparing the appendices to this book. I want to express my special appreciation to Jane K. Storero, Esq., who spent time reviewing the entire book.

Some of the chapters of this book were authored or co-authored by others. Jeffrey M. Taylor, Esq., a securities lawyer with expertise on international IPOs, co-authored the “Avoiding SOX” section of Chapter 9. Tim Drew, a solicitor and notary in the Hong Kong office of Blank Rome LLP, co-authored the description of Hong Kong Stock Exchange contained in Chapter 9. Joseph T Gulant, Esq., an international tax expert, authored Chapter 10. Jane Storero, Esq., a securities lawyer with expertise on public shells, authored Chapter 12. Brad L. Shiffman, Esq., a securities lawyer with expertise on SPACs, authored Chapter 13.

The author also acknowledges the outstanding services of Barbara Helverson, who served as an editor as well as the typist for this book.

Introduction

Going public is the dream of many private companies, regardless of where in the world they are located. Founders of private companies can maintain their control positions in the public company and still sell their personal stock to diversify their investments. Public companies typically can raise capital more cheaply and easily than private companies, with far fewer operational restrictions. Much of the wealth of the Fortune 300 families resulted from their association with founders of public companies.

Although excessive U.S. regulation has sullied the initial public offering (IPO) dream of many smaller U.S. private companies, international IPO markets are still available and increasingly hospitable to IPOs of private companies located throughout the world. The Alternative Investment Market (AIM) of the London Stock Exchange, discussed in Chapter 9 of this book, has proven attractive to smaller private companies around the world, including smaller U.S. companies.

In an increasingly “flat” world,1 private companies must consider global opportunities for IPOs in those countries with the highest valuation potential and the most hospitable regulatory environment. Although the U.S. markets are still very competitive on the valuation of private companies, they are not necessarily competitive in the regulatory environment, particularly for smaller public companies. Traditional U.S. IPOs with bulge bracket underwriters require post-IPO valuations substantially exceeding $100 million, and preferably at least $250 million, in order to be of interest to institutional investors and to be followed by securities analysts. Therefore, smaller private companies wishing to have a U.S. IPO must either use lower-tier underwriters or be merged into a public shell (Chapter 12) or a special-purpose acquisition company (SPAC, discussed in Chapter 13).

Warren Buffett has stated in his famous letter contained in the Berkshire-Hathaway 2007 annual report:

Despite our country’s many imperfections and unrelenting problems of one sort or another, America’s rule of law, market-responsive economic system, and belief in meritocracy are almost certain to produce ever-growing prosperity for its citizens.

Although this may be true, other countries are developing a similar culture and in the future may be equally attractive.

In Chapter 1 we explore the pros and cons of a U.S. IPO, including why the U.S. IPO market has become less hospitable for IPOs of smaller private companies and what can be done to make the United States more internationally competitive. Although the country is very competitive in valuing IPOs, its regulatory structure is burdensome, particularly for smaller companies, compared to international alternatives, which are discussed in Chapter 9.

In Part One of this book (Chapters 2 through 8), we discuss advance planning techniques for both an international and a U.S. IPO, with the primary emphasis on U.S. IPOs.

Chapter 2 covers the necessity of developing an impressive management team and how to use equity incentives to attract and retain key executives. One-man or one-woman companies are not good IPO candidates. Underwriters want to see IPO candidates who use a team approach to management.

Chapter 3 discusses methods of growing the business to make the company attractive for an IPO. We note that future growth potential is the most important ingredient of an attractive IPO candidate and give examples of IPOs by companies with little or no revenue but great growth potential. Chapter 3 also discusses acquisitions and so-called roll-ups to increase the size of the company prior to an IPO.

Chapter 4 examines the necessity of having auditing or auditable financial statements, the lack of which will prevent an IPO. This chapter also covers the problem of when companies can recognize revenue for accounting purposes, which is a hot-button issue with the Securities and Exchange Commission (SEC) and has hindered many U.S. IPOs.

Chapter 5 discusses the necessity of changing business practices that may violate law well before an IPO, since these questionable business practices can prevent an IPO. We also examine in detail the increasing enforcement activities against violations of the U.S. Foreign Corrupt Practices Act and similar laws in other countries.

Chapter 6 reviews the defenses to a potential hostile takeover of the company that should be in place prior to an IPO. We give examples of provisions that can be inserted into the charter of the public company to deter unwanted suitors, including hedge funds and other activist shareholders.

Chapter 7 discusses the corporate governance mechanisms that should be in place well before an IPO target date, including the formation of an audit committee consisting of independent directors, the development of good internal controls, and a whistleblower policy.

Chapter 8 covers two topics of importance in IPO planning. First, we discuss the possibility of creating insider bailout opportunities before the IPO so that some of the proceeds from the IPO can be directly or indirectly received by insiders. Second, we discuss the necessity of taking advantage of IPO windows, including IPOs in the same industry or certain IPO fads that occur from time to time.

Part Two of this book (Chapters 9 and 10) covers international IPOs. In Chapter 9 we discuss the methodology of structuring an IPO for a U.S. company. We review the mechanics of forming a foreign holding company and avoiding the burdensome reporting requirements of SEC rules as well as costly provisions of the Sarbanes-Oxley Act of 2002 (SOX). We also explore in detail in this chapter an AIM public offering as well as public offerings on other international stock markets, such as the Growth Enterprise Market (GEM) of the Hong Kong Stock Exchange. Chapter 9 also contains a comparison of the costs of an IPO on Nasdaq and on the AIM and a comparison of post-IPO costs on both exchanges.

Chapter 10 deals with the U.S. federal income taxes of international IPOs by U.S. companies and therefore complements Chapter 9.

Part Three of this book (Chapters 11 through 15) describes both traditional and nontraditional IPOs in the United States.

In Chapter 11 we describe in detail the typical IPO process in the United States, with an example of an underwritten public offering and the costs of doing so.

In Chapters 12 through 15 we discuss alternatives to the traditional U.S. IPO that may be of interest to small businesses. Chapter 12 covers reverse mergers into public shells, which is an alternative (albeit risky) for smaller private companies that wish to become part of a publicly held company.

Chapter 13 deals with the very recent phenomenon of forming publicly traded special-purpose acquisition companies (SPACS) with significant capital and having the private company merge into the SPAC.

Chapter 14 deals with Regulation A offerings, which permit private companies to raise up to $5 million over a 12-month period. Chapter 15 covers the so-called SCOR (small corporate offering registration) offering, which permits private companies to raise up to $1 million over a 12-month period.

Appendix A of this book contains a list of the international stock exchange Web sites that can supply valuable listing information to those companies considering an international IPO. Appendix B contains selected responses we received from a survey we conducted of the international stock exchanges.

NOTES

1 Thomas Friedman, The World Is Flat (New York: Penguin Books, 2006).

Chapter 1

Pros and Cons of a U.S. IPO

The New York Stock Exchange (NYSE) and the Nasdaq Stock Market (Nasdaq) are the most prestigious stock markets in the world and are likely to remain so for the next five years. However, they are facing increasing competition from foreign stock exchanges.

A private company considering an initial public offering (IPO), regardless of where in the world the private company is located, should first consider the NYSE and the Nasdaq for an IPO because these stock markets are well regulated and highly liquid and have strong corporate governance standards. For private companies that will have, after an IPO, a market valuation of over $250 million, these prestigious U.S. exchanges are the first places to consider. However, this is not necessarily true for smaller private companies (whether U.S. or international) planning an IPO, as discussed later in this chapter.