A Brief Introduction on Reverse Mergers
Reverse takeover or RTOs is another term that we get to hear commonly in the place of reverse mergers; both are the same thing. When a reverse merger takes place in a company that is private; it basically allows that firm to be public. These reverses are basically financial transactions that are rapidly becoming popular and also getting accepted. Usually such reverse mergers take place with companies that are public SEC reporting and are not active; they also do not have liabilities or any assets in most of the cases. Such companies lack any history regarding current operations along with audited financials that are SEC qualified.
RTOs always have some history with them when they happen and there are always a few shareholders too. Companies that seek access into the PIPE market consider reverse mergers since they have proven to be highly effective for them. These companies contain investors that have bought shares in the early stages via public vehicles. Reverse mergers can be said as an alternative to IPO. All these transactions get followed with some private placement most of the time. The structure they have is much more versatile compared to IPOs. A company that is privately held and is relatively smaller should consider a reverse merger then IPO since this can turn out to be very effective.
A long term strategy for exit can be found in public stock for the founders. Public shells are referred to as the public companies that are for some reasons no longer running their business or do not even plan to do so in the future as well. Such public companies are taken as more attractive places to invest in having a much greater value overall compared to private firms. Private ones do not attract that much investors compared to the public companies; public company investments are considered to be liquid.
A valuation of public shell increased or a reverse merger would have results like this; usually the public traded companies will experience a higher valuation substantially compared to private companies therefore they will enjoy a lot. Secondly, another option that comes along with a reverse merger is that it can be consummated fast and without spending much either. Reverse mergers are taken place all over the globe in several countries. Usually the investors are enjoying greater returns out of their invested money; at least most of them are.