Going public via RTO

While small and medium-sized businesses deciding to go public face challenges, including capital requirements and regulatory hurdles, the advantages of public trading status can sometimes far outweigh the disadvantages. However, once the decision to go public has been made, companies next have to decide whether they will do an initial public offering (“IPO”) or go public through the less glamorous means of a reverse takeover (“RTO”).

Investopedia defines an RTO as “a type of merger used by private companies to become publicly traded without resorting to an initial public offering. Initially, the private company buys enough shares to control a publicly traded company. The private company's shareholder then uses their shares in the private company to exchange for shares in the public company. At this point, the private company has effectively become a publicly traded one.”

While it is not quite as simple as that definition would make it sound, it can be a fair amount easier than going public by way of an IPO. In fact, there are a few advantages for (mainly smaller) companies to go public through an RTO rather than an IPO. Among the advantages:

Shorter timeline – Whereas the process for doing an IPO is often tedious and long, an RTO can be accomplished in a fraction of the time, sometimes measured in weeks or a few months rather than up to a year or more for an IPO.
Less stock dilution – With the RTO route, companies can go public without raising much (or in some cases, any) additional funds.
Less expensive – With an RTO, road show marketing is often less extensive and underwriting fees substantially lower than for an IPO. In fact, road show marketing and underwriting fees can be avoided entirely if there is no concurrent financing.
Companies considering going public via an RTO versus an IPO have to weigh these advantages against the disadvantages of the RTO route, namely, lower liquidity and lower visibility.

Also read: Chinese companies acquiring North American listings http://post.ly/12Grq