The Likely Alternatives Private Capital Raise/Bank Loan Private Sale Dual-Track Approaches (IPO/Private Sale) Benefits : ■ Control ■ Less or no dilution ■ Less expensive and time consuming ■ No public obligations Considerations: ■ No acquisition “currency” ■ Limits equity compensation ■ Investor pressure for realization event/liquidity options ■ No “public” profile or market following Which way to go? Alternative Approaches Benefits: ■ Can be complete realization event ■ Avoids market instability ■ No public obligations or related expenses Considerations: ■ Typically, no continuing involvement by management and founders ■ May be time-consuming and expensive ■ No opportunity for further value creation from the business Benefits: ■ Potential to maximize shareholder value ■ More responsive to market conditions Considerations: ■ Unsuccessful sale could affect IPO valuations ■ More time-consuming and expensive Direct Listing Rule 144A Offering Regulation A Offering (with exchange listing) Spin-Off Benefits: ■ Potentially faster than traditional IPO ■ No lock-ups ■ Lower transaction costs Considerations : ■ Historically not accompanied with a capital raise, although now permitted under recent stock exchange rule changes ■ Post-listing trading can be choppy following the listing; some companies combine with a Dutch-tender offer to try to stabilize the price ■ Doesn’t bring in long-term holders in a meaningful way as would an IPO ■ Less liquid and robust trading market generally Benefits: ■ Potential steppingstone to IPO ■ SEC-style disclosure but with greater flexibility ■ No SEC review allows for quicker execution ■ Access to capital from institutional investors ■ Resale market may provide some liquidity for investors Considerations: ■ Likely to price at greater discount than an IPO ■ Less liquidity for investors than IPO/direct listing ■ Limited to institutional investors ■ Investors will get registration rights with penalties for not completing IPO/listing by deadline Benefits: ■ Provides IPO on-ramp ■ Scaled SEC disclosure ■ Attractive to smaller private companies Considerations:3 : ■ Not widely used ■ Blue Sky exemption only for Tier 2 offerings (up to $50 million) ■ Not available for certain companies (Exchange Act registrants, registered investment companies, business development companies, asset-backed issue) Benefits: ■ Unlocks perceived value of a business unit or subsidiary ■ All benefits of being public Considerations:3 : ■ Compliance with complex tax requirements and new restrictions ■ Recent change in law generally prohibits REIT tax free spin-offs by non-REIT entities ■ SEC process is substantially similar to IPO ■ All considerations of being public 2024 Guide to REIT IPOs and Listing Transactions | 28
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