Why Go Public with a Reverse Merger?

Using an existing public company in a reverse merger or acquisition scenario has a number of key benefits. When a reverse merger is performed a private company will seek to go public by merging into a public shell corporation. When this occurs the existing public company shell remains as the surviving entity post-merger, but the previously private operating business continues without interruption. When a private company merges with a public shell, it typically acquires 85 to 90% of the stock and changes the name and ticker symbol of the previous corporation. The newly merged company will appoint its own management and board of directors. Depending on the size of the firm and whether it is posted on the OTCBB or NASDAQ, there are shareholder thresholds which must be met for SmallCap and other definitions. When a private company goes public in this fashion, there are a number of key benefits:

  • Greater liquidity of the corporate shares
  • Higher corporate valuation
  • Greater access to future capital by engaging in future stock offerings via the public markets
  • The strategic ability to attract and retain key employees with the use of stock options and stock incentive plans
  • Make strategic acquisitions using corporate stock
  • Owners can use the stock as part of a pre-planned retirement strategy
  • The costs are significantly less than the costs required for an initial public offering (IPO)
  • The time to market is also significantly less than traditional IPO
  • Circumvents the risk of IPO withdrawal during turbulent markets after IPO costs have been incurred
  • IPOs are more time-intensive and require greater management attention and diversion
  • Reverse mergers don’t require the type of stringent stable earnings history needed for a traditional IPO
  • There is no need for an underwriter in a reverse merger scenario
  • Reverse mergers are less dilutive to the owners and less control is sacrificed

An expert understanding of securities laws is required to process and navigate the reverse merger landscape. We provide a turnkey solution for our clients who may be looking to go public via a reverse merger. The proper legal, accounting, finance and broker representatives must be utilized to provide the assistance in handling the entire reverse merger value-chain. We provide a “soup-to-nuts” solution for our clients, including management of the company location, the outstanding liabilities and unresolved legal issues. We also work with our partners to help raise additional capital when necessary. A complete merger done right requires all components of corporate finance, an understanding of corporate securities and a thorough understanding of investor relationships.

While there are downsides to going public, including less confidentiality, greater costs for accounting, legal and SEC filing fees, the pros often greatly outweigh the cons, especially for growing businesses looking for capital to expand. Our full service approach and commitment to client excellence is the reason we work tirelessly to ensure our clients receive the best possible outcome at a reasonable rate. We also ensure we align ourselves with the goals and objectives of each client with whom we work.