At the closing of an APO, the public shell and private company sign merger documents to complete the reverse merger; file a 8K with the Securities and Exchange Commission (SEC), which is the required public disclosure of transaction; file a registration statement with the SEC to register the PIPE shares; release PIPE funds from escrow; and issue a press release announcing the completion of the transaction.
At this point analyst research coverage begins and the company focuses on IR efforts, non-deal roadshow, conferences etc.
At the conclusion of a successful APO transaction, a company has received equity funding and has a base of institutional investors.
A company that goes public through an IPO must sell its stock to a large number of shareholders in order to meet these requirements necessitating a broad marketing and roadshow process.
Therefore, a private company can pursue going public through an APO and understand what kind of investor response and valuation they will receive without having to make the “leap of faith” requirement of an IPO.
Investment banks find the APO process appealing because they can receive the same fees and breakage for raising the capital as they do in an IPO in a much condensed period of time and to a significantly smaller number of investors.
PIPE investors are attracted to the APO because they get to buy stock at a negotiated discount to the projected public market value of a company.
Investors expect a discount on stock since they are buying restricted securities and thus this is a more expensive cost of capital to the company.