In our first post, we became more familiar with the unique environment that many technology companies (and others) choose to operate in, when deciding to go public at the NASDAQ exchange market.
We investigated the main characteristics that differentiate NASDAQ from other existing trading arenas, and described the various reasons why many Israeli companies choose to trade there instead of utilizing the local stock exchange in Tel Aviv. To read more about the previous post, click here.
And now for the main event.
At this very moment, our High-Tech department is representing a life sciences company throughout its first initial public offering (IPO) on the NASDAQ stock exchange. This is a technology-driven company (whose identification, naturally, is confidential at this time) that researches and develops innovative methods in the life science field. The company is currently looking to expand its capital structure by funding capital from public sources in order to continue its research and development.
Following numerous investment rounds in the private sector, in which the company was able to muster tens of millions of dollars, the company needed to make a decision regarding its next stages in funding aspects. Of course, The company could have conducted an additional round of private investment that would fit the product development financial needs, however at this point, the company’s management unanimously decided that the public sector is the best way to increase its accesses to capital sourcesAt the end of the day, we must understand that transforming a company to a public entity is a process that does not only fit the management financial goals, but is also favorable for both the stock holders and the stake holders.
Hambuger Evron & Co. has continuously accompanied the company in its day-to-day matters in all commercial aspects for years, including agreements between investors and other shareholders, technology licensing agreements, FDA, clinical and pre-clinical matters, financial agreements etc.
Due to the fact that an IPO can be a “traumatic” experience for a company (as we will explain later), which requires the dedication of many resources while maintaining the regular business necessities for months, this process naturally affects the regular activities of the company. Therefore, a law firm that already is familiar with the company’s nature and emphasizes organization and clarity, provides a significant advantage to the issuing process, and at best, will save hours of work and at worst, will help deal with various possible “surprises” that may arise and potential information gaps. Therefore, it only makes sense that our firm will also accompany the IPO process.
The role of legal counsel in the IPO process is very diverse and challenging, especially in our case, where we are involved in the company’s everyday life. From the moment the decision is made to trade on the stock exchange, the company's counsel must provide legal opinions regarding the current state of the company, its readiness to endure the process and its ability to undergo the numerous challenges that the issuing process requires.
Legal counsel must take into consideration many future variables that might affect the success of the process, including the company’s financial situation, corporate behavior and capabilities to uphold the reporting requirements and public company disclosures throughout the issuing process - and especially afterwards. Similarly, there is a great advantage in knowing the underwriters that the company works with upon conducting Road Show processes and upon locating relevant investors (institutional entities, banks, holding companies, etc.), and knowing the status of the market regarding products relevant to the company.
After making the decision, the legal counsel guides the company in its preparations and general readiness for all of the requirements and criterion the underwriters need for checking the IPO. The nature of the job changes, in accordance to the country we are attempting to issue the company’s stocks in, due to the various laws applied there.
In our case, the Company contemplates its IPO on the NASDAQ stock exchange, located in New York, and therefore, there are two different relevant systems of law - first, obviously, Israeli Companies law that imposes various requirements regarding the appointment of directors, external directors, audit committees, accountant review and more. Second, is the American Securities Law.
At this stage, the main job of a legal counsel is to gather all of the company’s relevant material for the issuing process. The counsel and the company’s management dive together into the company's records and assemble enormous amounts of information in order to formulate a satisfying document that shows the entire picture regarding the company. This document, which includes reports, protocols and various financial and commercial details, in due time will come together to become a draft of registration statement that helps the underwriters decide whether or not to approve the company’s IPO process.
Later on, we will provide a deeper understanding of the activities of a legal counsel and its significance during the intermediate stage between deciding to enter the IPO process on the NASDAQ stock exchange and receiving the approval of underwriters in order to start looking for investors. At the end of the day, the investors are the most important factor for a company to be able to gain leverage and reach the goals that brought them into the process in the first place - recruiting the necessary resources in order to develop the technology that will shape our future.