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RTO VS IPO (Canada)


There are different method to take your company public in Canada: initial public offering, reverse takeover, and direct listing. There are several advantages and few disadvantages of reverse takeover (RTO) over initial public offering (IPO). 

An IPO requires a preparation, filing and clearance of prospectus which is subject of review and approval by the securities exchange commission. Disclosure document for RTO includes prospectus level disclosure with respect to the private company. In addition disclosure documents relation to RTO transaction will not be subject to review by commission. Private company will undergo due diligence and disclose information which  it has not previously  made public, including three years of audited financials.

The private company will also need to conduct due diligence  of the public company to ensure that it is not inheriting any material unknown or unforeseen liabilities and that public company is up to date with its securities regulatory requirements.

If public company isn't a shell company and has substantial assets and operation there might be strategic reasons for combining business while still retaining advantages of being  a public company. Management also may have valuable industry relationships that could be useful. Public company will also provide a private company with shareholders which will help with meeting stock exchange public float and distribution requirements. In this way private company will be able to leverage public company's existing listing and liquidity. If public company is a shell company its shareholders may benefit from increased liquidity after RTO is complete.

The amount of capital raised through any private placement financing in a conjunction with the RTO  is usually much less than capital raised trough IPO. The RTO is beneficial for companies that don't have immediate need for capital.
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