February 4, 2019

Small Cap M&A: The New Reg A Alternative to Form S-4

With the SEC’s recent expansion of Reg A eligibility to Exchange Act reporting companies, this Sheppard Mullin blog says public company buyers may want to give some thought to using Reg A to register shares issued in small transactions.  Here’s an excerpt:

Regulation A could prove particularly useful to reporting companies that seek to use stock consideration ($50 million or less in a Tier 2 offering) to acquire a target company with many equity holders in a transaction that would otherwise require registration on Form S-4 due to the unavailability of Rule 506 of Regulation D or another exemption from registration under the Securities Act.

The SEC Staff has confirmed in published guidance (Compliance & Disclosure Interpretation, Question 182.07) that Regulation A may be relied upon by an issuer for business combination transactions, such as a merger or acquisition.

Advantages to Reg A as compared to S-4 include the ability of non-S-3 eligible issuers to incorporate information by reference into a Form 1-A, reduced line-item disclosure requirements, a generally “lighter touch” from the Staff on review, the absence of a required 20 business day solicitation period if information is incorporated by reference, blue sky preemption & the absence of Section 11 liability.

Of course, there are some disadvantages too – including an overall $50 million cap on offering size, limits on the value of unlisted securities to be received by a non-accredited target company shareholder and an inability to forward-incorporate by reference. Still, for many buyers, Reg A may be an option worth exploring.

John Jenkins