REVERSE MERGER FUNDING

Reverse Merger Funding is when a private company reverse mergers into a public company and receives funding as part of the process. Basically, the private company is taking over the public company for the purpose of using its public status of what is also referred to as a “public shell”. This is why the transaction is referred to as a Reverse Merger. If the public company was a successful business and was buying the private company, it would not be called a reverse merger transaction, it would just a merger, and the surviving operational entity would be the public company.

Each year a significant number of public companies reverse merge into a public companies. The process is not very complicated but does require that the private company have at least two years of audited financial statements prepared by a PCAOB approved auditing firm. The most likely reason for such a move by the private company is to access the capital markets and raise capital for growth and acquisitions. If properly structured, reverse merger funding can help companies achieve this goal.

The public “Shell” company usually has significant value simply because of the fact that it is a public entity, has a stock symbol and has a shareholder base. These factors make it much easier to raise capital from investors by issuing stock that is registered or can be registered with the United States Securities and Exchange Commission (SEC). Investors like to invest in public companies more than they like to invest in private companies because it gives them and additional Exit Strategy.

A public company has much more flexibility when it comes to raising capital than a private company. A public company’s common stock can basically be viewed as another asset it has for raising capital. Once its business model has been established it stands a very good chance of raising capital for growth, mergers or acquisitions. Many investors such as Special Situation Funds actively contact small public companies to help them with their capital needs.

Tips on Raising Capital.
One of the most difficult tasks small companies face is raising capital. Get some useful tips that might give you an extra edge on sourcing capital and structuring a transaction with interested investors.

Reverse Merger Funding Strategies.
One of the more popular funding structures is the equity line which companies can use to raise capital by entering into a Standby Equity Purchase Agreement.