How much does a reverse merger really cost?

Summary

Costs vary based on a number of factors. A reverse merger has upfront shell costs, transaction costs, compliance expenses and potentially other costs. The total cost can easily exceed $450,000 plus stock.

What does a publicly traded shell cost?

The first expense associated with a reverse merger are the costs related to buying control of the public shell. This will vary based on general market conditions, supply/demand of shells, the stock exchange the shell is traded on, the balance sheet, contingent liabilities and a number of other factors. Generally speaking, a controlling interest in an OTC QB shell can be acquired for $350,000.

What are the transaction costs?

Once you've secured a publicly traded shell, you'll need to document how your private company will become part of the public company. The corporate and securities legal work could easily exceed $50,000.

What are the compliance costs?

Once you've merged your business into the pubic shell, the combined entity must comply with the SEC reporting requirements by providing updated information relating to the financial condition and business of the company. Generally speaking, this will require the preparation of financial statements, an audit, and an extensive disclosure document. These costs can easily exceed $100,000.

What are the professional advisor costs?

Professional advisors charge from $100k to $200k+ plus stock and/or options to help companies complete a reverse merger. Generally, there's a $50k fee on engagement and the rest is paid as milestone are achieved during the process.

What is the equity cost?

One substantial cost is the equity retained by public shell stockholders. Although a private company acquires majority interest in the public entity in conjunction with a reverse merger, a public float still exists. The shares not acquired in a reverse merger transaction generally range from 3% to more than 10% of the combined equity value. This can be substantial, especially given that the holders of those shares typically have little to no incentive to retain their shares. As buyers come into your stock, these preexisting shareholders will likely sell.

Are shell company liabilities assumed?

Yes, of course and potentially worse are the contingent liabilities associated with the public shell. When a private company merges into a public one, the private company essentially becomes responsible for the contingent liabilities of the public entity. This is a critically important issue that needs to be carefully investigated and considered before entering into a reverse merger transaction.

Can you take us public by reverse merger?

We help entrepreneurs develop a go-public strategy, tap into our network to build the professional team, and manage the process to facilitate a direct listing, reverse merger or initial public offering. We can help you with a reverse merger if desired but it's generally better to complete a direct listing instead. Our services help entrepreneurs take their company public so they can recruit talent, raise capital, complete acquisitions, and create significant wealth. Connect with us to learn more.

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