Reverse Mergers / Shell Companies
Going Public without the cost of an IPO!
Many successful private companies are ready to make the transition to the next level by going public. But for some reason they may not be in a position to complete the process of going public through an Initial Public Offering (I.P.O.). Some companies may not need the money from an IPO but still desire to go public. Other companies may not be able to produce the historical financial statements needed to complete the filing requirements. Or there may be some other reason for wanting to go public without completing an IPO. The alternative method of going public is to merge with a company that is already public.
There are many companies that are already public but do not have any operations. A private company that merge with one of these companies would be completing what is know as a reverse merger. In a reverse merger the private company's operations would continue and legally the public company would continue. The net effect is that the private company is now public.
There are hundreds of public shell companies available for reverse mergers. Some are actively traded and some are not. The cost of these companies can vary greatly. You can find one by contacting the usual suspects. As a first stop, ask an attorney. Every metropolitan area has a law firm with a securities practice. Often, these firms have a dormant public company sitting on one of the partners' bookshelves.
Another alternative is an accountant. People who control shell companies tend to keep the financial statements, such as they are, up to date. This brings accountants into the loop. Like attorneys, they know where the bodies are.
Another source is financing consultants. In fact, many actually have a couple of clean public shell corporations formed for the purpose of taking companies public through a reverse merger. These made-to-order (blank checks) shells comes without the baggage of business failures in their background can sometimes be the way to go.
But there's often a cost involved. That is, you will most likely end up with the financing consultants as minority shareholders in the new company, holding between 2 percent and 5 percent. However, in almost any reverse merger transaction, the principals of the shell company keep a small equity position in the company going forward. Therefore, this surrender of equity is simply a cost of doing business.