CFO Bryan Carr and his colleagues at Intellon Corp., a semiconductor maker in Ocala, Fla., were anxious to raise capital through an initial public offering in 2001. But as the equity markets soured, so did the company's IPO prospects. By March, Intellon had withdrawn its offering. Nevertheless, the company was still able to tap financial markets in a timely fashion, thanks to Rule 155.
The rule, adopted by the Securities and Exchange Commission in January, reduces the waiting period for companies that want to withdraw an IPO and seek capital from the private markets, or, conversely, decide to ditch a private offering and go public instead. "Without Rule 155, we would have had to wait six months after withdrawing the [IPO] registration before we could engage in a private equity financing," reports Carr, "and that would have made it difficult for us to execute growth plans without running into integration issues." Instead, Intellon began tapping the private markets 30 days after scrapping the IPO.
Rule 155 is a blessing for companies in erratic markets, such as biotechnology. "If you track biotech indexes, you'll see massive volatility on a daily, weekly, and monthly basis," explains Andrew Gengos, CFO of Dynavax Technologies Corp., in Berkeley, Calif. "There's just no way you can predict if the market is going to be there when you launch an IPO."
By removing the time constraints, Rule 155 also reduces some of the risk associated with raising capital in the public markets. "If your company can file for an IPO and wait for the equity market to emerge, what's the downside?" asks Gengos, whose company withdrew an IPO in April. "There is no downside, especially if you can walk away from an IPO that looks shaky, and within a month begin working toward a private placement." -- John P. Mello Jr.
RULE 155 CONDITIONS
To go private within 30 days of an abandoned IPO, the issuer must:
- Not have sold securities in the registered offering.
- Withdraw the registration statement.
- Provide proper notification to private offerees.
- Disclose any postregistration changes.
SOURCE: SECURITIES AND EXCHANGE COMMISSION