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Last Post: 4/27/2021 1:28:57 PM - Followers: 0 - Board type: Free - Posts Today: 0

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Why Do a Reverse Merger Instead of an IPO

Updated Sep 14, 2019

A reverse merger (also sometimes called a reverse takeover or a reverse IPO) is often the most expedient and cost-efficient way for a private company that holds shares that are not available to the public to begin trading on a public stock exchange. Prior to the rise in the popularity of reverse mergers, the vast majority of public companies were created through the initial public offering (IPO) process.


In a reverse merger, an active private company takes control and merges with a dormant public company. These dormant public companies are called "shell corporations" because they rarely have assets or net worth aside from the fact that they previously had gone through an IPO or alternative filing process. 


It can take a company from just a few weeks to up to four months to complete a reverse merger. By comparison, the IPO process can take anywhere from six to 12 months. A conventional IPO is a more complicated process and tends to be considerably more expensive, as many private companies hire an investment bank to underwrite and market shares of the soon-to-be public company.


Reverse mergers allow owners of private companies to retain greater ownership and control over the new company, which could be seen as a huge benefit to owners looking to raise capital without diluting their ownership.

Benefits of a Reverse Merger 

In most cases, a reverse merger is solely a mechanism to convert a private company into a public entity without the need to appoint an investment bank or to raise capital. Instead, the company aims to realize any inherent benefits of becoming a publicly listed company, including enjoying greater liquidity.


There may also be an opportunity to take advantage of greater flexibility with alternative financing options when operating as a public company.


The reverse merger process is also usually less dependent on market conditions. If a company has spent months preparing a proposed offering through traditional IPO channels and the market conditions become unfavorable, it can prevent the process from being completed. The result is a lot of wasted time and effort. By comparison, a reverse merger minimizes the risk, as the company is not as reliant on raising capital.


The expediency and lower cost of the reverse merger process can be beneficial to smaller companies in need of quick capital. Additionally, reverse mergers allow owners of private companies to retain greater ownership and control over the new company, which could be seen as a huge benefit to owners looking to raise capital without diluting their ownership. For managers or investors of private companies, the option of a reverse merger could be seen as an attractive strategic option. 


Special Considerations 

One of the risks associated with a reverse merger stems from the potential unknowns the shell corporation brings to the merger. There are many legitimate reasons for a shell corporation to exist, such as to facilitate different forms of financing and to enable large corporations to offshore work in foreign countries.


However, some companies and individuals have used shell corporations for various illegitimate purposes. This includes everything from tax evasion, money laundering, and attempts to avoid law enforcement. Prior to finalizing the reverse merger, the managers of the private company must conduct a thorough investigation of the shell corporation to determine if the merger brings with it the possibility of future liabilities or legal entanglements.



Stock Ticker                Company                                      Price Bght                Price Sold        % Gain        % Loss                Reason                         Short/Mid/Long-term                            Moderator's Pick
$SFIN                  Safetek International Inc                        $0.012                    $                                                                  Reverse Merger                         Mid-Term                                       OracleofOC                  
$LVXI                   Las Vegas Xpress Inc                            $0.0005                  $                                                                  Reverse Merger                         Mid-Term                            OracleofOCLvnthedream
$MMEDF             Mind Medicine MindMed                        $0.32                      $                                                                  BioPharma                                 Long-term                                      KILLAZILLA
$RSPI                  RespireRX Pharma                                $0.008                 $                                                              Pharma                                   Mid-term                                    OracleofOC
$HTBX                 Heat biologics Inc.                                 $1.50                      $                                                                   Pharma                                     Long-term                                       OracleofOC
$RBII.                  Rising Biosciences Inc.                          $.0017                    $                                                                   BioPharma                                Short-term                                      OracleofOC
#21   ((((( $SNDL )))))) SpotOnTrade 04/27/21 01:28:57 PM
#20   $AMIH, $WTII, $VITX, $CURR, and $SPRT are my GrandAdmiralThrawn 04/25/21 11:41:01 AM
#19   Read headline to fast. Looks like NeuroRx doing KILLAZILLA 10/15/20 10:57:20 PM
#18   LOAD UP NOW!!! RLFTF merger with NeuroRX and KILLAZILLA 10/15/20 01:39:43 PM
#17   EUA Coming very soon. Positive pr with topline KILLAZILLA 10/13/20 04:23:14 PM
#14   $RLFTF Been in this one and should be KILLAZILLA 10/09/20 05:39:33 PM
#13   $TPTW They're into various different things. I like KILLAZILLA 08/03/20 04:10:31 PM
#12   $GAXY looks pretty good. Most kids home schooling. KILLAZILLA 08/03/20 04:08:13 PM
#11   I like the transparency of this board........Keep it Immanuel-Immanuel 07/23/20 02:52:32 PM
#10   So new stock for the weekend and early GrandAdmiralThrawn 07/17/20 01:46:14 PM
#9   I'm thinking Nasdaq might be my element from GrandAdmiralThrawn 07/15/20 09:17:36 PM
#7   $ENZC on HIGH ALERT!!!!!!!!!!! Let me repeat, $ENZC GrandAdmiralThrawn 07/15/20 04:30:26 AM
#6   $RSPI ready for a multi-penny run GrandAdmiralThrawn 07/15/20 12:37:39 AM
#5   $SFIN gaining nice today, holding for dollars, because, GrandAdmiralThrawn 07/14/20 11:12:13 AM
#4   I'm hoping to take over another board, this GrandAdmiralThrawn 07/14/20 04:22:51 AM
#3   ZERO DOUBT LVXI SHELL being taken over!!..zero!...Writing on Lvnthedream 07/14/20 01:38:11 AM
#2   I’m liking lvxi a lot..mngmt will come through Lvnthedream 07/14/20 01:34:47 AM
#1   $SFIN and $LVXI are my picks so far GrandAdmiralThrawn 07/13/20 09:44:30 PM
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