A “reverse merger” is when a private company purchases enough shares of a publicly traded business to consider it an “acquisition.” This then turns the existing company public.
The reason that many business owners consider a reverse merger is that it does not involve the fees and long waiting time of an IPO (Initial Public Offering).
By becoming a public entity, the company is more likely to receive equity capital. A reverse merger is useful when a business owner is looking for more financing.
Some businesses are created for the sole purpose of being acquired by a private company. These are referred to as “shells.” Any local M&A firm should be able to easily provide a business owner with a shell for their reverse merger.
It is imperative that the private business has enough capital to purchase the shell, because they will not acquire funds from the merger and outside funding for a reverse merger is not an available option.
Hiring an accountant or M&A advisor will help give credibility to a reverse merger, as it can often hold a negative connotation in the business world. It is important to be sure that the shell is not laden with liabilities that will harmfully affect the private company. An advisor will help uphold the reputation and the revenue of a company in a reverse merger. Contact one of our experts at George & Company today.