What Is Reverse Merger, And Is It For Everyone? Part 2

 

 What Is Reverse Merger, And Is It For Everyone? Part 2


"What Is Reverse Merger, And Is It For Everyone? Part 2" is the second of a two-part series that explores the advantages and disadvantages of reverse merger. In this part, we'll talk about whether reverse merger is for everyone.

Reverse mergers are often touted as a quick and seamless way to go public in the United States and Canada. However, not all reverse mergers will be successful; there may be some factors that temporarily prohibit you from listing your company's shares on an exchange. As always, due diligence is key!


Part 1: https://cleverinvestorblog.wordpress.com/2017/03/28/what-is-reverse-merger-and-is-it-for-everyone/

What Is Reverse Merger, And Is It For Everyone? Part 2: https://cleverinvestorblog.wordpress.com/2017/04/02/what-is-reverse-merger-and-is-it-for-everyone_4707/#more-4707

Here is an important warning for you, if you are interested in reverse merger: be sure to thoroughly vet your potential business partner and the organization that will be handling the listing of your company's shares on the stock exchange. It is not enough to do a few basic "due diligence" searches and assume that everything is fine, as it's not. Like anything in business, there are always some red flags that you should examine.

In this post, I'll look at the advantages of reverse merger and examine which companies you should consider doing a reverse merger with to realize the full benefit. We will also take a quick look at some of the pitfalls that can befall your company if you decide to do a reverse merger with them.

Advantages Of Reverse Merger

Mergers happen in various ways all over the world every single day, but the big majority happen via more conventional mergers (also known as "forward mergers"). These transactions are usually pretty straightforward and go through very quickly. However, there are a few advantages to doing a reverse merger.

More Choice And Comprehension For Shareholders : As you may know, shareholders of public companies have limited money to invest and they usually only want to invest in businesses that they fully understand. A reverse merger allows an investor to avoid many of the complications that often happen when a company undergoes a forward merger. This can often be accomplished without having investors lose much or any money if they have enough vision and interest in the corporation's future growth prospects.

: As you may know, shareholders of public companies have limited money to invest and they usually only want to invest in businesses that they fully understand. A reverse merger allows an investor to avoid many of the complications that often happen when a company undergoes a forward merger. This can often be accomplished without having investors lose much or any money if they have enough vision and interest in the corporation's future growth prospects. Lower Costs : There are costs associated with a forward merger, including legal fees, accounting fees, filing fees and more. In other words, it's possible that you'll spend tens of thousands of dollars on your new business if you go through this type of acquisition. In a reverse merger, the business usually pays nothing, which can be appealing to a struggling business.

: There are costs associated with a forward merger, including legal fees, accounting fees, filing fees and more. In other words, it's possible that you'll spend tens of thousands of dollars on your new business if you go through this type of acquisition. In a reverse merger, the business usually pays nothing, which can be appealing to a struggling business. Delays : Sometimes companies need more time than they have in order to obtain financing or other resources and/or prepare their businesses for the competitive marketplace that they will face after the acquisition. A reverse merger provides more time for a business to prepare, and that can be helpful for both investors and new owners.

: Sometimes companies need more time than they have in order to obtain financing or other resources and/or prepare their businesses for the competitive marketplace that they will face after the acquisition. A reverse merger provides more time for a business to prepare, and that can be helpful for both investors and new owners. Private Securities : Private securities are normally much harder to sell than public ones. A reverse merger can be especially attractive if you have private holdings that you want to sell quickly but haven't found any buyers yet.

: Private securities are normally much harder to sell than public ones. A reverse merger can be especially attractive if you have private holdings that you want to sell quickly but haven't found any buyers yet. Promote Marketability: An owner of a company that is contemplating doing a reverse merger needs promotional materials upon which to market their business. The business needs to appear to be one that can generate profits and become popular with the public.

Disadvantages Of Reverse Merger

There are some disadvantages of the reverse merger process, though. If a business does not take advantage of these issues and look for not just any business partner but one with experience, the process will almost certainly become difficult and even hazardous for it in the long run. Here are a few of the most significant disadvantages:

Fixed Contracts : It's important that you fully understand every aspect of your contract before you sign anything. If a company offers you an unfixed contract, one in which to operate on certain terms that it sets and upon which it sets all requirements, then there is no way to negotiate. This type of contract can lead to problems as a business owner since things change frequently and sometimes without notice.

: It's important that you fully understand every aspect of your contract before you sign anything. If a company offers you an unfixed contract, one in which to operate on certain terms that it sets and upon which it sets all requirements, then there is no way to negotiate. This type of contract can lead to problems as a business owner since things change frequently and sometimes without notice. Wrongly Put Together : If a company decides to do the reverse merger with you but fails to do the proper research and compliance, there is no warranty that your business will last even one day, let alone grow or thrive. You'll waste both time and money if that happens.

: If a company decides to do the reverse merger with you but fails to do the proper research and compliance, there is no warranty that your business will last even one day, let alone grow or thrive. You'll waste both time and money if that happens.

Conclusion

Reverse mergers are a popular means of quickly becoming a public company, but you absolutely need to do your research before you go through with one. If done improperly and with the wrong goals in mind, it can be disastrous. You can read more about reverse merger procedures and the advantages and disadvantages of dealing with a private company that is considering this type of merger by visiting our page on SEC rule changes for private companies.

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