Reverse merger is a good alternative to traditional initial public offering. Reveres merger is the acquisition of a public company by a private company when shareholder of a private company purchase control of the public company and then merge it with a private company. In this way lengthy and complex process of IPO is bypassed. Publicly traded corporation is called shell because that company usually doesn’t have any assets or net value but only its organizational structure.
What reverse merger does is that it separates the going public process and capital raising function. Is is basically conversion mechanism that turns private company into public company. Raising capital is not priority but benefits that come with being a publicly traded company. This separation is the main reason why reverse mergers has so much benefits. private company doesn’t have to hire investment bank for underwriting and marketing the shares the process is less expensive and less time consuming.
IPO usually takes 6 – 12 month, in some cases over the year while reverse merger takes few weeks to four months. Difference is significant and it will enable management to concentrate on the business and not lose too much time and energy dealing with going public process. Even if company is undergoing traditional IPO process it doesn’t mean it will ultimately go public because stock market condition can change in a one year period. Management can decide to opt out if conditions are unfavorable. Reverse merger is less dependent on market condition because company doesn’t rely so much on raising capital but on benefits of being a publicly listed company. The greatest benefits include greater liquidity, greater access to capital market, attract more investors and flexibility in financing.
Reverse merging into a public company opens new financing options including:
- Issuing stock in an additional secondary offering
- Exercising warrants, where stockholders may purchase additional shares at predetermined prices
- Increase liquidity of company stock
- Higher company valuation since share prices may be higher
- Using stock to acquire other companies in order to grow the business
- Using stock incentive plans to attract and retain valuable employees
- Overall greater access to a variety of capital markets
Mina Mar Group has invested significant resources and capital to develop and maintain an inventory of clean public shells for a variety of stock markets and company sizes. We have done the extensive work of “cleaning” our public shells thereby reducing all associated risks. We provide these public shells to our IPO clients and we also sell our public shells to qualified and interested parties.
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