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Our service enable clients to successfully become publicly traded in the United States via direct public offering, reverse merger or initial public offering.

Reverse Merger Services

What is a Reverse Merger?

A reverse merger is a transaction whereby a private company merges into a public company. Generally, the private company or its’ investors acquire control of the public company and then consummate the merger. Reverse mergers are a popular way for private companies to go public.

What are the advantages of a Reverse Merger?

There are many advantages of a reverse merger, including but not limited to:

  • A reverse merger transaction can be completed in a few weeks;
  • All of the transaction costs are known upfront so there are no surprises;
  • Disclosure documentation is not generally reviewed by the Securities and Exchange Commission;
  • There are few parties involved, so transactions can close fairly smoothly;
  • Less time consuming for management;
  • Success is not dependent on marketing conditions;
  • A reverse merger transaction costs less than a traditional IPO;
  • Any legitimate operating business can become publicly traded through a reverse merger, regardless of their financial size or condition.

What are the disadvantages of a Reverse Merger?

There are several disadvantages of a reverse merger, including but not limited to:

  • Significant financial and legal due diligence is required of the private company before entering into any transaction;
  • Post-transaction, the private company inherits all of the financial and legal obligations of the public entity;
  • Often, the types of people involved in reverse merger transactions have questionable ethics and integrity;
  • Shareholders of the public entity retain a small percentage of the outstanding shares which results in some dilution;
  • Reverse mergers cost more than a Direct Public Offering;
  • No investment capital is raised with a reverse merger unless that is organized separately.

While there are many publicly traded companies, only those will little or no business operation would be suitable candidates for a reverse merger transaction. Generally, these companies are referred to as “shells” because little remains from its’ previous business operations. Many times, shell companies failed to achieve their original business objectives and have terminated their operations but retained the publicly traded status as a way to maximize shareholder value. In other cases, shell companies were formed for the sole purpose of entering into a reverse merger transaction. Depending on the rules and regulations followed, shell companies can be a legitimate or seriously problematic conduit for a private company to become public. Once a private company merges into a public entity, it inherits any financial and legal issues of the predecessor company. Therefore, a key part of reverse merger transactions involves financial and legal due diligence.

What are the costs of a Reverse Merger?

A reverse merger has six major cost components:

  • Shell acquisition
  • Accounting fees
  • Legal fees
  • Professional adviser fees
  • Filing fees
  • Financing fees

Often, acquiring control of the publicly traded company is the biggest cost of a reverse merger. As with many prices, the cost varies with supply/demand as well as the cleanliness of the financial and legal condition of the public shell. Over the last few months, shells have cost approximately $375,000 to $400,000 (excluding the cost of accounting, audit and legal services).

Accounting fees, legal fees, professional adviser and filing fees are largely dependent on the size and complexity of each transaction. Some transactions can be completed for about $50,000 while others can cost several hundred thousand dollars. The legal disclosure requirements of a reverse merger are very similar to that of a direct public offering, so all of the professional fees are comparable and in addition to the cost of acquiring control of the public shell.

Financing fees are charged based on the amount of funding raised and fees can only be paid to licensed persons. We are transaction consultants and not licensed to raise funds by any federal, state or regulatory agency.

How can we help?

As professional consultants experienced in reverse mergers, we assist private companies through the planning, implementation and management of the transaction. We enable management to focus on building their business by reducing the amount of time they need to be directly involved in the process. And, by properly planning, implementing and managing the transaction, we are able to efficiently use resource and reduce accounting and legal fees.

As an alternative, consider an initial public offering or direct public offering.

For more information or a detailed proposal to take your company public, please call 516-284-8679or email.

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