Reverse mergers: the Rodney Dangerfield of going public

The NYSE became a public company by a reverse merger with Archipelago Exchange. That forgotten fact came out yesterday in our webinar Reverse Mergers and Alternative Public Offerings.

Album_no_respectThis fact is very significant in context to the over-generalized “no respect” that reverse mergers carry. Admittedly, the flood of Chinese companies in 2011 (and their subsequent delistings) as well as deceitful shareholders who are anxious to “dump” their “shell” stock does nothing to boost confidence in reverse merger companies. Even the SEC sent an investor alert cautioning investors about reverse mergers, stating that they may be prone to fraud and other abuses.

But this over-generalization can be EASY foiled by investors doing what they should always do: diligence. It’s not the process… it’s the people.

How a reverse merger works:

  1. Existing Public Company A creates wholly-owned Subsidiary B
  2. Stockholders of acquiring Private Company C negotiate with the shareholders of Public Company A in to merge with Subsidiary B
  3. Private Company C merges into Subsidiary B, with the Public Company A surviving and shares issued to shareholders of Private Company C
  4. Private Company C becomes a wholly-owned subsidiary of the Public Company A with the controlling stockholders of Private Company C usually owning 90% or more of the Public Company A and Public Company A ‘s shareholders owning the remainder
  5. Private Company C’s management team becomes the directors and officers of the public company

How a reverse merger works visually:

Currently public company...

rm1

creates a subsidiary.

rm2

Private company makes an offer to merge with 
the subsidiary....

rm3

Which it does...

rm4

 ...creating a new public company organization lead by 
the management team from the private company.

RM5

Ta-da! This entire process involves SEC filings Schedule 14f-1 (10 days prior to closing) and a “Super” Form 8-K (with full audited financials) due within 4 days of closing. Plus, since the issues that came clear from the Chinese companies’ “mis-steps,” both the NASDAQ and NYSE have put higher controls in place regarding reverse mergers.

Reverse mergers are a transparent and expedited path to becoming public. At no time should it be considered “quick & easy.”

Working with us DOES ease a lot of the burden, however :)

Enjoy the webinar HERE.

Have a great day.

One response to “Reverse mergers: the Rodney Dangerfield of going public

  1. Nice job yesterday, Sir.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s