* Regulation S: Advantages for the Issuer
While the economic benefit of a Regulation 'S' deal are theoretically obvious for the investor, it is important to understand why an issuer would sell its shares at such a discount to the US Market price. The reason has its basis in US Securities laws that were written more than 60 years ago and which have not been amended significantly to reflect the modern investment environment. Consequently, a public offering of securities in the United States has become a lengthy, cumbersome, expensive and uncertain process.
The alternative of a Private Placement is almost as difficult and the two year holding period for buyers means a steep discount anyway. Thus, Regulation 'S' offers the following advantages:
Speed: Regulation 'S' offerings are very quick. From start to finish, capital is often available in as little as two weeks. By contrast, private placements and public offerings often take more than six months and are far less certain of success. In addition, during that six month period of time, the window for private placements and public capital could slam shut, making capital unavailable at any price.
Size: Regulation 'S' can be used to raise amounts that might be considered too small for a public offering. Thus, the amount is tailored to suit the issuer not the investment banker.
Cost: In general, the legal, accounting, and prospectus costs of private and public offerings are fairly significant as a percentage for deals in the $1 to $15 million range. By contrast, Regulation 'S' costs very little in the way of additional legal, accounting and prospectus costs. The investment banking fees are on a par with public offerings.
Management Impact: Perhaps the greatest benefit of Regulation 'S' is the low impact that it has on the management team's time and attention. As any senior executive of a company which has done a public offering or a major private placement knows, the whole exercise is a major distraction from the fundamental business of the company. Companies exist to make a product or provide a service, market it and support those who sell the product or service and operate the business. This is tough enough without distractions. Raising capital can be a serious drain on the fundamental business. Regulation 'S' offerings allow the management to remain focused on running a profitable business.
With the advantages of a quick turnaround, greater flexibility in amount and structure of the capital, lower costs and less management impact, the good news is also rather compelling for an issuer. The bad news is that if a Regulation 'S' transaction is mishandled, it can cause problems...
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