WELCOME TO THE REVERSE MERGERS BOARD
A reverse takeover
or reverse merger
(reverse IPO) is the acquisition of a public company by a private company
so that the private company can bypass the lengthy and complex process of going public. The transaction typically requires reorganization of capitalization of the acquiring company.
In a reverse takeover, shareholders of the private company purchase control of the public shell company and then merge it with the private company. The publicly traded corporation is called a "shell" since all that exists of the original company is its organizational structure. The private company shareholders receive a substantial majority of the shares of the public company and control of its board of directors. The transaction can be accomplished within weeks. If the shell is an SEC-registered company, the private company does not go through an expensive and time-consuming review with state and federal regulators because this process was completed beforehand with the public company. However, a comprehensive disclosure document containing audited financial statements and significant legal disclosures is required by the Securities Exchange Commission for reporting issuers. The disclosure is filed on Form 8-K and is filed immediately upon completion of the reverse merger transaction.
The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing, the shell company issues a substantial majority of its shares and board control to the shareholders of the private company. The private company's shareholders pay for the shell company by contributing their shares in the private company to the shell company that they now control. This share exchange and change of control completes the reverse takeover, transforming the formerly privately held company into a publicly held company. Generally, reverse mergers succeed for companies that don't need the capital right away. Normally, a successful publicly traded company will have at least sales of $20 million and $2 million in cash. Click here for examples of reverse mergers
STRUCTURING THE SHELL TRANSACTION 1. Determine the market capitalization of the private company. Compare the sales and earnings of your company to those companies in the same industry that are no public.(example: if your company is earning $5 million per year and the average public P/E ratio of public companies in your industry is 20, then your initial market capitalization should be $100,000,000.) List of important filings/definitions:
2. Divide that number by the initial share price you would like to have on your stock. This price should be at least $5.00 per share. (example: $100,000,000/$5 = 20,000,000 shares.)
3. Multiply that number by the percentage of the shell shares that you have negotiated with the representatives or officers and directors of the shell (example 90 - 10% = 18,000,000 shares)
4. Subtract this number from the total number of shares outstanding as determined in "2" above. (example 20,000,000 - 18,000,000 = 2,000,000 shares)
5. The outstanding shares in the shell will then be reverse (or forward) split to equal the number obtained in "4" above.
15-12G "When a firm "goes dark" it deregisters with the Securities and Exchange Commission (SEC) and delists its shares.
PRE 14C All preliminary information statements, excluding, mergers, contested solicitations and special meetings.
DEF 14C All types of definitive statements, excluding: mergers or acquisitions, contested solicitations and special meetings.
Reg D Companies selling securities in reliance on a Regulation D exemption or a Section 4(6) exemption from the registration provisions of the '33 Act must file a Form D as notice of such a sale. The form must be filed no later than 15 days after the first sale. The exact form type is usually REGDEX, but may be a REG D-1 or similar.
SB-2 This form may be used by "small business issuers" to register securities to be sold for cash.
S-8 This form is used for the registration of securities to be offered to an issuer's employees pursuant to certain plans.
S-1 This is the basic registration form. It can be used to register securities for which no other form is authorized or prescribed, except securities of foreign governments or political sub-divisions thereof.
1-E / 2-E Business development companies (BDC) can avail themselves of a more esoteric provision of the Securities Act - Regulation E, which provides an exemption from registration for securities issued by BDCs. In short, under Regulation E, a BDC may issue up to $5 million worth of securities a year without registration. Also under Regulation E, an individual may offer to sell up to $100,000 of securities in a BDC each year.
424B1, 2, 3, and 4 filings are final registration statements to register stock under previously filed SB-2 S-1 and S-2 filings, and they serve other purposes.
EFFECT filings are notice's of effectiveness of POS AM's and some S filings ie: S-1, SB-2. The EFFECT filing comes prior to the 424B3 filing we see when the shares enter the market
Rainmaker's stages of readiness
Things to look for when a stock gains attention
Belmont Partners transactions