Reverse Mergers, GLG, and the New, Not-So-Public IPO

So, everyone knows how difficult and expensive it is to launch a public offering on Nasdaq or the New York Stock Exchange these days. That’s why it’s probably not surprising that astute investors are exploring reverse mergers, which allow a company to go public without the hassle of Sarbanes Oxley and S-1s.

In the upcoming July issue of Venture Capital Journal, I take a look at this phenomenon as it applies to the venture industry. Over the past couple of years, exit-starved VC firms have taken at least a half-dozen portfolio companies public this way. In most of these cases, a company gets an instant ticker by buying and merging into a publicly traded shell company. Usually, the company also raises money with a concurrent PIPE investment from institutional investors.

But while I wasn’t surprised to see some consumer-oriented portfolio companies like the Jamba Juice chain going public this way, I was caught off guard by the announcement earlier this week that London’s GLG Partners would be taking the reverse merger route.

GLG, an alternative asset manager with more than $20 billion in gross assets, announced on Monday that it plans to access the U.S. public markets through a reverse merger with Freedom Acquisition Holdings (AMEX: FRH), a “blank check“ company formed for the purpose of consummating a merger. The transaction values GLG at approximately $3.4 billion based on Freedom’s closing price last Friday, according to GLG.

The combined company will be named GLG Partners, Inc. Shares of the combined company are expected to trade on the New York Stock Exchange under the ticker symbol “GLG“ upon consummation of the transaction. GLG will also explore the merits of a dual listing in Europe. (You can read more about the transaction in GLG’s press release (http://www.glgpartners.com/production/press_release/file/12/GLG_to_Access_Public_Markets_Through_Reverse_Acquisition.pdf)

What I’m curious about is what prompted this move, and is it likely to be a sign of more to follow?

Another curious note: GLG’s reverse merger announcement coincided with a more stinging news release from the Securities and Exchange Commission. On Tuesday, the SEC announced that it settled enforcement actions GLG Partners for illegal short selling in connection with 14 public offerings. During a two-year period, according to the SEC, GLG made more than $2.2 million in illegal profits in four of its managed hedge funds by committing multiple violations of rules designed to prevent manipulative short selling, prohibits covering certain short sales with securities obtained in a public offering. GLG agreed to a cease-and-desist order and payment of more than $3.2 million in disgorgement, prejudgment interest, and penalties.