Reverse merger

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Reverse Merger

An act where a private company purchases a publicly traded company and shifts its management into the latter. It also normally involves renaming the publicly traded company. This allows private companies to become publicly traded while avoiding the regulatory and financial requirements associated with an IPO. In order for a reverse merger to happen smoothly, the publicly traded company is usually a shell corporation, that is, one with only an organizational structure and little or no activity. The two businesses can then merge the private company's product(s) with the public company's structure. It also makes initial trading less dependent on market conditions, a key risk in IPOs. However, it is important to note that a reverse merger only provides the private company with more liquidity if there is a real market interest in it.

Reverse merger.

In a reverse merger, a privately held company purchases a publicly held company and, as part of the new entity, becomes public without an initial public offering (IPO).

It's described as reverse because in the more typical merger pattern a public company purchases a private company to expand its business.

References in periodicals archive ?
Honig and Frost are well-versed in reverse mergers, having used the method successfully within the biotech industry on numerous projects.
The Public Company Accounting Oversight Board (PCAOB) has raised concerns about the auditing of Chinese companies accessing the US market through reverse merger transactions.
Two types of reverse mergers aimed at securing exchange listings have gained prominence since 2002, the Dotcom bust: (1) the namesake reverse merger and (2) the special purpose acquisition company (SPAC).
Given the negative view the SEC appears to hold of reverse mergers, what would you advise a private corporation today which is considering the use of a reverse merger in order to "go public"?
There are no exact figures on the number of reverse mergers taking place these days, but indications are that they are on the upswing--and for good reason.
Reverse mergers have had their share of controversy, resulting in a negative image.
suggested Dash raise capital by taking the company public through a reverse merger.
Lux's advice and expertise in reverse mergers and public markets was recently instrumental in one of his clients recently winning a fast $1.
The final element of the reverse merger proposal concerns control of the company after the acquisition.
The SEC issued an investor bulletin regarding reverse mergers stating "there have been instances of fraud and other abuses involving reverse merger companies" and that investors "should be careful" when considering buying these companies' stock.
An important difference is that standard "backdoor" reverse mergers are effected with no review by the SEC or any exchange and trading can commence immediately after the standard reverse merger is closed.
Experts from the most prestigious and influential investment banking, legal, accounting and investor relations firms will assemble for this landmark one-day event to discuss the major issues at the forefront of reverse mergers and non-traditional alternatives to going public.