A reverse merger is a method by which a private company merges with a shell and becomes public without a traditional public offering.
The private company’s shareholders generally receive between 65% and 95% of the public shell’s stock. Four factors tend to affect this valuation:
1 “Cleanliness” of the shell. This is primarily dependent on how recently an operating business existed in the shell.
2 Valuation of the private company merging in. A start-up will retain less of the merged company than a sales-generating company with $1 million in earnings.
3 Cash. Cash in the shell increases the shell’s value.
4 Shell management. The value of the shell will improve if those managing the shell have reputable backgrounds.
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