A reverse acquisition is a form of acquisition that merges with a public shell in order to begin offering securities, like stocks, to the public. The public shell is a company that previously formed to be used in a public shell reverse merger. The public shell is used to accept a private company in the reverse acquisition in order to accomplish several things, much like a public offering.
The public shell has no history of operations, no liabilities, and no assets, and can be used in as an alternative for companies that would normally have to have made an Initial Public Offering (IPO). The reverse acquisition made through the public shell can be beneficial for several reasons.
1. The private company will not have lost as much overall ownership as with an IPO, so it won’t be quite so accountable to investors. A company that has made its IPO becomes answerable to all its investors on the other hand, legally and otherwise, and does not have quite so much freedom in its actions.
2. A reverse acquisition merger almost always takes far less time than an IPO, as IPO’s can involve months or years and require the expertise of investment banks, as well as heavy company resources to be successful.
3. A reverse acquisition costs a company less than an IPO.
4. An underwriter isn’t required for the process.
5. The company gets a higher market valuation.
6. Fewer legalities are entailed, and less attention is needed from management through the process.
Before the reverse acquisition, a private company should first look into its options. While it’s definitely a viable alternative to an IPO, combing a company’s finances may help determine new ways to raise a fair amount of funding internally through other means, such as streamlining, efforts to improve efficiency, and improvements in methodology and training.
Posted in 
Tags: 