DealLawyers.com Blog

August 10, 2015

Corp Fin Deems Regulation A Permitted for M&A

I’ve been meaning to blog about this development. Here’s an excerpt from this blog by Gunster’s Gus Schmidt:

The positive news comes in the form of the SEC staff’s response to Question 182.07 which asks whether issuers would be able to use Regulation A in connection with merger or acquisition transactions that meet the criteria for Regulation A in lieu of registering the offering on an S-4 registration statement. Based on the SEC’s final adopting release, it did not appear that Regulation A would be available for use in these types of business combination transactions. However, the interpretation published yesterday clarifies that issuers may, in fact, use Regulation A in connection with mergers and acquisitions. The one exception is that Regulation A would not be available for business acquisition shelf transactions that are conducted on a delayed basis.

This is a very positive development for issuers that want to issue equity in connection with acquisitions of other companies, but do not wish to become a public reporting company under the Exchange Act. Previously, these issuers had very few options for actually issuing securities outside of filing a registration statement and subjecting themselves to Exchange Act reporting obligations. This was particularly the case in instances where there were a large number of target company shareholders who were not deemed to be accredited investors and the acquirer could not rely on the private offering exemption.

Based on the new SEC staff interpretations, these issuers may now consider using Regulation A to issue equity in connection with business combination transactions. Although there are certain reporting and other obligations that would be required under Regulation A, they are significantly less burdensome than those that would be required of an Exchange Act reporting company. For that reason, Regulation A offering are sometimes referred to as “mini-IPOs.”