How Reverse Mergers can Benefit Companies

In today’s competitive business environment, companies constantly seek innovative ways to raise capital, gain exposure, provide shareholder liquidity, and increase their market share. A reverse merger into a public company is sometimes one of the most effective ways to achieve these goals. Let’s explore the benefits of reverse mergers and how they can benefit companies.

Fastest Path to a Major Exchange

One of the primary benefits of a reverse merger is that it can provide the fastest path to a major exchange like Nasdaq or the New York Stock Exchange. This is particularly important in today’s market where compliance requirements are becoming increasingly onerous, deal sizes are down, and investors have less risk tolerance. By working with a reverse merger specialist, companies can bypass the traditional underwriter and non-fundamental investors to gain more control over their valuation and negotiation.

Shelf Ready

Another significant benefit of a reverse merger is the ability to access capital at market pricing without the need for market discounts or warrants. This is particularly useful when a company needs to raise funds quickly to take advantage of growth opportunities. Additionally, by using the shelf-ready option, companies can lower their cost of capital and supplement or replicate an “IPO” on their own terms. Not all public companies have a current and active shelf on file, so this is an individual consideration.

Setting the Value for the Company

A reverse merger also allows some flexibility for companies to set their market value instead of having the investment bank set the share price and market value. By solidifying the company’s market value, it avoids negotiations with investment bankers who may want to provide as much discount as possible to their customers. This can allow companies to maximize the valuation for a successful reverse and long-term value, rather than just making immediate money for IPO investors.

Driving Volume

Reverse mergers also allow companies to drive volume and attract institutional investment. By leveraging a nicely trading stock and building daily trading volume, companies can become more attractive to institutional investors. This can be particularly useful for smaller companies that may have difficulty building trading volume on their own due to their lack of an established trading activity history.

Transaction Completion Confidence

A reverse merger also provides companies with transaction completion confidence. Reverse merger specialists can help companies communicate a path sure to liquidity in uncertain markets or economic climates for their shareholders and stakeholders.

NOLs

Finally, reverse mergers may also provide companies with significant tax benefits. For example, companies with Net Operating Losses (NOLs) can utilize a portion of those losses yearly. Companies can leverage these tax benefits by ensuring that they can take advantage of existing NOLs to reduce their overall tax burden and maximize their profits.

In conclusion, reverse mergers can provide significant benefits in certain circumstances, from providing a fast path to a major exchange and setting the company’s market value to driving volume and providing potential tax benefits. Companies can leverage these benefits by working with a reverse merger specialist to raise capital, gain exposure, and increase their market share.

This article is not meant as financial advice but is just meant as general information from a non-financial professional. Please consult financial and legal advisors for any important transaction.