06 Sep Sell-Side Liquidity Solution for Owners of Private, Closely-Held Businesses: Crowdfunding PIPE Transactions Directly into a Reverse Merger
Approximately 10,000 baby boomers will retire each day for the next 19 years. Of these, it is estimated that up to 7% own and operate businesses. With roughly 25% of the U.S. population retiring in the next two decades, the largest transfer of both personal and business wealth in the history of mankind has already begun. Significant opportunities exist for dealmakers assisting in the transfer and consolidation of business assets over the next two decades.
Our model offers an alternative to traditional private equity for accredited investors looking to take advantage of the large growth in the M&A market over the coming years by utilizing PIPE (private investment in public equity) financing combined with going public transactions with reverse mergers via SPACs (special purpose acquisition companies). In many instances the deals are funded by both internal contacts and use of today’s equity crowdfunding portals (e.g. EquityNet, Fundable, Crowdfunder.com, etc.).
The process is fairly simple, but involves many nuances and hang-ups that could flatten the deal. It is done via the following steps.
- Deals are sourced in a buy-side fashion, commensurate with the skills of the Management Consultants included in the General Partner.
- A private placement memorandum or PPM solicits a specific equity capital raise amount for a known percentage of the business in question. The private buyout of the long-standing business owners may be financed by both the equity (in the form of a PIPE) and debt in the form of traditional bank financing.
- A SPAC is sourced for the purpose of simultaneously “going public” and financing the deal with the bank debt and crowdfunded PIPE*.
- Due diligence and “going public” preparation is performed on both the shell (if not a clean SPAC) and the target, including accounting/legal audit and reporting in preparation for the company’s eventual new “public” status.
- PIPE financing and reverse merger take place simultaneously. The seller achieves a deserved liquidity for the business while private placement investors gain an immediate ROI on their initial investment.
We’re currently working on a couple deals of this nature with a few of our partners and should have some more case studies to report soon.
*All money raised in the PIPE is to be kept in escrow until the PIPE financing and reverse merger are simultaneously consummated. The only exception to this includes basic financing for a SPAC or a corporate audit of the private company target prior to the deal closing.