Similar to the fall and rise of various stars of the Hollywood, reverse mergers have experienced both downfalls and ups during last few decades. Around the 2000s, many people showed the market successfully that how such combinations like reverse merging, come into play for the non operational public vehicles. This can be highly successful, legit and has the highest transparency. During the late 2000s, another thing which many offshore firms faced is the fraud accusations, and many out of these firms have gone public via reverse mergers. Because of this issue, SEC carried out so-called rules in 2011, making it difficult for the older reversed firms for up-listing the national exchanges.
During last few years, the reverse mergers once again to resurfaced like a complete alternative for the firms which either prefer to ignore cost, risk and time or either try not to qualify for the traditional IPO, even it is possible to get IPO. Other companies have selected the additional alternatives like self-filing, which is also used for getting fame for those firms that don’t want to get themselves burdened due to the new rules of SEC rules.
So, here some reasons why the mechanism of reverse merging is utilized by millions of the firms today and remained highly attractive and viable for a long time in the market.
1. Fast system:
If a company requires for raising its capital in upcoming few months, but the source of capital needs that the company to be public for itself for writing the check, there exists no fast method for going public than the usage of reverse merger being a public shell option.
The reverse mergers remain less costly as compared to other conventional IPO, even if you include the price of buying the shell. Few shells, particularly so-called form shells, are made from the scratch and are very clean, however not trading at the start can be very cheap than the shells which are traded in later stages.
3. Seasoning can be bypassed:
Using the reverse mergers seasoning, rules by the SEC don’t matter much if you want to do trading in a year while setting your firms at the public state or can upswing the public offering at the amount of more than $40 million after using the merger. Many people have used one option or the other. More extensive options for the public offering has become very famous particularly in the field of biotech space.
The SEC needs a complete revelation of your document which is to be filed after combining it with a shell company reporting the SEC. This was something which was not necessary before 2005 and ensures that the investors own the same info like that given in the registration statement mentioned in an IPO done nearly immediately after the reverse merger gets completed. Sometimes certain reviewing of these files is done by the SEC for ensuring that the procedure is accurate, but this reviewing does not take place until you have completed the process of the combination.
5. Low dilution:
While using the reverse mergers usually carry a small percentage of the firm which is offered to the former owner of its shell. Within an IPO, more money is often earned as compared to that which is requested and at this cost, the firm hopes a lot to get the lowest profit, and it takes a lot more time to earn money in the same time. Thus, the owners of a firm experience the high percentage of the dilution during the typical process of making IPO.