Reverse Merger Explained
A public offering is a great way for a company to raise capital and improve their corporate profile. However, it can be a complicated and somewhat expensive process. There is a shortcut that can be taken. It is called a reverse merger; it is used as an alternative to an IPO.
A reverse merger is when a private company acquires a public company that is dormant. This public company might be dormant. But it must be listed on the stock exchange even though it has no assets to fall back on probably due to a bankruptcy.
Many companies take to this alternative. Reverse mergers are also known as reverse takeovers as it gives a private company control over a public one. The shareholders of the private company control the board of directors and maintain a strong ownership of the public company.
Benefits of Reverse Merger
One of the benefits of a reverse merger is that it can be concluded quickly and cheaply. It does not involve the unnecessary protocol that is usually associated with public offerings. Reverse mergers are perfect for businesses or companies that are not desperate to make money in the short-term. It works better for companies that want to grow slowly but surely.
Secondly, reverse mergers provide a security that might not be available with IPO opportunities. An IPO depends on marketing conditions. Reverse mergers do not rely on this climate. They cannot be cancelled at the last-minute and are not subject to instability.
When a company plans to go public via an IPO process, it can take more than a year. The cost of this process can be a very expensive one. A reverse merger does not take up to 30 days to complete. Ironically, public companies enjoy higher valuations when compare to private companies. And what this means is that they have a faster growth rate as well.
Reverse mergers are good because they offer tax shelters to private companies. The public company may have taken plenty of hits and suffered losses. However, these losses can be carried over and converted to profits. By merging a public company with a private company, it is feasible to protect your merged company profits from subsequent taxation.
If you want to be successful with reverse mergers, you need to be highly perceptive. Keep tabs on happenings in financial circles and have a keen eye for spotting opportunities before they go public.
It is always smart to leverage on reverse merger opportunities that can give you back your money’s worth in little over a year.
About The Author
Alam Qureshi is a Certified Business Intermediary (CBI), Certified M&A Professional and Broker of Record at ProClient Brokers Inc., Brokerage. He helps business owners learn how to sell a business so they can get the maximum value for their company. call us 416 364 5550 or CONTACT US to get in touch.
Date modified: 7-24-2019