We receive a great deal of requests from folks I like to refer to as the tire kickers. They’re those that like to waste a lot of time, but at the end of the day their business–or in most cases their business idea–lacks the robustness required of a public company. Sadly, in most cases, the tire kickers also lack the budget to even take a company public in the cheapest way possible. If you want to take your company public, there are time and monetary costs to doing so. In some instances, you may find someone willing to do an equity deal, but I always suggest steering clear of them as they typically include unfavorable, immoral or illegal terms that can come back to haunt or hurt a business. It is in that spirit that I wish to share a few of the “vetting” questions we often use to see if a deal is really worth some pursuit. In most cases, we’re looking for ways to save time and resources on opportunities that ultimately conclude in a dead-end. By no means is this list exhaustive and I may add to it later as needed.
What industry are you in? While we’re typically equal opportunity APO consultants, we don’t do deals across all industries. There are specific industries that are more rife with fraud and abuse than others and we tend to steer clear of them altogether. Marijuana is one such market.
What is the name of the company and its principal shareholders and officers? This typically provides enough information to do some surface-level due diligence on the company and its managers and shareholders to ensure they’ve all got clean slates. We don’t like working with dirty players and it’s best to know who and what we’re dealing with up front, rather than find out weeks or months later.
How long have you been around? Is this an attempt at a start-up business or has the company been operational for several years with a decent track record of success?
Have you been audited? If a company seeking public status has already been audited, then the public offering and registration process can move much more rapidly.
What type of budget do you have for your shell? No budget. No deal. If you don’t have money, but you need a shell, you’ll likely need to start speaking with the sharks.
How quickly do you need to move? Some companies needed to be public yesterday while others have some time. There is always a cost, quality and speed trade-off and unfortunately we can’t deliver on all three.
What are the company revenues for the last two years? Please share a balance sheet an income statement.
Do you need to raise money? If so, how much? While we don’t raise money, we’ll typically need to know if the company does and if so, how much they are looking to raise. In some instances, other private equity or venture capital firms may make better sense than doing a public offering for a startup.
What are your other intentions with the shell? Of course if there are nefarious intentions, we’ll likely never know, but it certainly doesn’t hurt to ask. If we know the intentions are evil, don’t expect us to stick around.
How much of the shell do you need delivered? This question is a follow-up to the previous question and often helps to eek out any other potentially nefarious intentions.
Do you need a pink sheet company or a trading OTC shell? Again, we typically don’t deal in pinks, yellows or grays for the express reason that it’s easier to hide fraud and other issues in such deals.
Many of the aforementioned questions may require some type of Confidentiality Agreement/NDA due to the sensitive nature of the information.
We’ve actually put together a client vetting questionnaire which should provide us with the first few vetting questions we need to determine legitimacy as well as which direction may suit your particular business needs. Understanding some of the details helps us to at least somewhat filter out the “riff raff” reverse merger candidates before we end up spinning our tires unnecessarily for a deal that is likely never to materialize.
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck.
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this investment professional on FINRA's BrokerCheck.