CHAPTER 8Basics of Reverse Mergers
As exciting as the potential for Reg A+ is, it may not be the best option for all companies considering the benefits of having a publicly trading stock. Over the last few decades, Wall Street has discovered that there are more ways to go public than through an IPO. Of course we know the benefits of being public, including access to capital, growth through acquisition, and incentives for management through stock options.
Having various options for going public therefore is good news to many smaller companies, especially those that do not fit the typical profile investment banks use when deciding which companies can successfully accomplish an IPO, even under the new Reg A+. Now we will explore a number of these alternatives beyond an IPO, starting here with reverse mergers.
Berkshire Hathaway, Occidental Petroleum, Turner Broadcasting, Texas Instruments, Jamba Juice, and American Apparel are just a few well‐known companies that went public through a reverse merger. To the uninitiated, a reverse merger is a deceptively simple concept. Instead of pursuing a traditional IPO where, in many cases, an investment bank serves as underwriter or selling agent, a company arranges for its stock to be publicly traded following a merger or other similar transaction with a publicly held shell company. The shell company has no business other than to look for a private company with which to merge.
The shell may be the remnant of a bankrupt or sold organization ...