Are the promoters and consultants destroying the market for Reverse Merger? First lets take a look at reverse merger. In a Reverse Merger, an operating private company merges with a public company that has little or no assets, nor know liabilities (the "shell").
In some rare instances, the shell may have some amount of cash remaining for investment in the new enterprise. The public corporation is called a "shell" since all that exists of the original company is its corporate shell structure and shareholders.
The private company owners obtain the majority of the shell corporation stock (usually 90-95%) through a new issue of stock for the private enterprise or assets.
The public corporation will normally change its name to the private company's name and elect a new board of directors which will appoint the officers.
The public corporation will usually have a base of shareholder sufficient to to meet the 300 shareholder requirement for eventual admission to quotation on the NASDAQ Small-Cap Market, Or some other market.
Now to the problem or the devil is in the details: The private company goes out perform the proper due diligence on a "shell" after finding it to be clean, and with no adverse past history to disqualify it, goes ahead completes the purchase.
After paying an astronomical price, say in the neighborhood of $500,000.00- to 700,000.00 for a Bulletin Board shell they get 90-95% of the stock.
Not only is the price extravagant, he will also take the reverse out of Reverse Merger, by insisting on a stipulation that you won't do a reverse split and reduce the number of shares outstanding. By reverse splitting the shares you are reducing his 10%. Which was the original intent of the reverse merger.
What a bargain $500,000.00 or more for 90% of nothing and it gets better, Lets say the company has 300 shareholders and those 300 shareholders collectively own 500,000 shares and in some cases more, and the shell has 30,000,000 million shares outstanding which the owner(s) of the shell get keep 10% or 3.000,000 share. I am using the old math not the new.
After the market maker files and the company is trading on the Otcc Bulletin Board. Your problems begin, lets say friends and acquaintances hear your company is now public and go out and buy some shares driving the price to say $3.50,
now those 300 share holder who received their stock for pennies decide that they have hit the lottery and start selling making it necessary for you to go out and buy stock in the open market.
Now back to basic math, supposing you want to maintain the 3.50 price so you go out and buy the stock. 500,000 x 3.50 = $1,750,000.00 forcing you to go raid the kid's piggy bank if you don't have the spare change.
Now what about the 3,000,000 shares in the hands of the "shell" owner? 3,000.000 x 3.50 = $10,500,000.00, Time to ask the wife for loan.
And don't forget about those astute market makers and trader that are aware of the stock that will be coming out and depress the price of your company's stock.
Being the enterprising individual that they are, they will establish a short position on the stock of your company, after all they are entitle to make a living too.
Before you jump from the Empire State Building make sure there is net down below waiting for you.
Don't get me wrong a reverse merger can be done if you have a consultant that is looking out for you and is not part of the triumvirate (shell owner, securities Attorney and consultant). And in a few cases the same individual is performing all three functions.
I wouldn't recommend for you to go step out in to the mine field without a mine detector, in some of my previous articles I suggested way to check the smooth talking consultants and shell owners before they take you to the cleaners.
Also be aware that there are alternate way to go public the Reverse merger is only one of several option, so don't jump without looking, if you feel that you must do a Reverse merge insist on obtaining all the stock and not a share less.
In order to prepare you to deal with the complexities of the public arena I would have to write a book not an article, but I will continue to try and inform through articles so that you will be prepare if you decide to take the plunge and go public.
There are honest hard working consultants out there, in over 25 years in the business I have personally come across two of them. But there must be more.
If you want to know about the alternatives to a reverse merger get in touch with me through our website: www.genesiscorporateadvisors.com the alternatives may not be cheap but they are cheaper than paying $500,000.00 for 90% of nothing.
The answer to the title of this article is a resounding yes! They have taken the reverse out of Reverse merger.
josephquinones@genesiscorporateadvisors.com
Joseph D. Quinones, President of Genesis Corporate Advisors has spent over 25 years in the securities industry. In 1992 he founded JDQ Financial Group, Inc. and proceeded to build it up from a one man operation to the point where it employed many traders, advised numerous client and generate millions in revenues.
non-toxic cleaning company Winnetka ..The difference between rates and wages is not always clear... Read More
In my previous article, Step 1, your challenge for the... Read More
Running a business, whether large, small or in your home,... Read More
Paper Shredding Business Opportunities are blossoming up everywhere because in... Read More
The Operations Plan is a critical component of any business... Read More
As you may know, there are many ways to incorporate... Read More
In the Truck Washing Business every single type of vehicle... Read More
The Customer Analysis section of the business plan assesses the... Read More
We have all seen the mobile washing units cruising our... Read More
Buyers want both online and local information about where to... Read More
The following are six essential skills to business success. You... Read More
The FTC- Mighty Federal Trade Commission has unilaterally decided to... Read More
The book, "Become the Squeaky Wheel," by New Hampshire author... Read More
Anyone who is serious about washing aircraft as a full... Read More
To wash an airplane there are many items you will... Read More
Administrative and clerical tasks are the bane of every industry.... Read More
It has been said that the only constant is change.... Read More
What is the satisfaction & expectation review of the business... Read More
As a solo entrepreneur or small business owner, one of... Read More
Great question!Freeing your time is an indisputably key element in... Read More
Why? Because they have access to world class public relations... Read More
If you run a pressure washing company in a rural... Read More
We hear a lot of talk about junk mail nowadays.... Read More
Are you a home or small business owner and you're... Read More
In the 2003 Auto Laundry News Survey it was determined... Read More
experienced cleaning professionals Glencoe ..How do you sponsor an event and get personal introductions... Read More
What is in an information plan?Before you even meet with... Read More
It is essential that you fully understand how the fuel... Read More
If you own a mobile car washing, pressure washing or... Read More
Seventy percent of US households use the web when shopping... Read More
Many small businesses do quite well due to the blood,... Read More
Those who are in the pressure washer business should not... Read More
A Mattress Cleaning Business might be just for you if... Read More
1. TargetYou are not all things to all people. Decide... Read More
I've got good news and bad news. The good news... Read More
In a world full of complications sometimes we overlook the... Read More
So often small service businesses fail to exploit niches, which... Read More
Nothing can drive a business down faster than customers who... Read More
As a small business owner, outsourcing work to Virtual Assistants... Read More
What is the satisfaction & expectation review of the business... Read More
The bad things starts with the letter 'O'?.like Obstacles, Obstruction,... Read More
There is a Batting Cages Business for those people who... Read More
To have one of the popular in home daycare businesses.... Read More
Small business success is very similar to learning to walk,... Read More
You have spent considerable time pulling your business plan together,... Read More
Do you promote yourself as offering prompt, reliable and quality... Read More
The Service-Disabled Veteran-Owned Small Businesses (SDVOSB) is a program that... Read More
A recent survey indicated that clean Taxi Cabs Fleets have... Read More
One of the simplest ways to expand your marketing efforts... Read More
My colleague, Jane, recently lamented to me an all too... Read More
Small Business |