What are Reverse Mergers?
This method is used when a private company is converted into a public company by conducting a reverse merger with an SEC reporting public company. This type of transaction accelerates the process of becoming a public company.
Some Famous Companies that Started out as Reverse Mergers
Many people don’t realize how many famous companies went public via a reverse merger. The venerable institution the New York Stock Exchange went public in 2006 by doing a reverse merger. Some of the most high profile reverse mergers involve well known businessmen such as Warren Buffett, Ted Turner, Tony Robbins as well as Muriel Siebert, the first woman to purchase a seat on the NYSE (New York Stock Exchange). There are also many brand name corporations who have utilized a reverse merger including Burger King, Jamba Juice, Blockbuster Video, Tandy Corporation (Radio Shack), Texas Instruments and Waste Management.
Although they are not as high profile as an IPO (Initial Public Offering), reverse mergers are a viable option for companies large and small that are seeking to go public. A reverse merger is enacted when a private company merges into a pre-existing public shell in order to become a public company. There are several reasons for choosing to employ a reverse merger but the main motivations are the accelerated speed of going public and the increased access to capital sources available once a company does go public.
Most people familiar with the financial world know the name of Warren Buffett, he is one of the wealthiest men in the world and like the old brokerage firm ad says when he talks, people listen. A reverse merger was good enough for him; Buffett bought out a textile manufacturing company and then merged his insurance empire into it without even changing the name. His company, Berkshire Hathaway, is the product of one of the most famous reverse mergers to date.
CNN founder Ted Turner merged his Turner Outdoor Advertising to create the Turner Broadcasting System. Motivational speaker and life coach Anthony “Tony” Robbins was involved with an online self-help company that employed a reverse merger to jump start the going public process.
After becoming the first woman to purchase a seat on the NYSE, Muriel Siebert used a reverse merger to take her titular brokerage firm public, the company stock maintained a price greater than $70 for over one year. Not bad for a college dropout.
Oilman and industrialist Armand Hammer (not to be confused with Arm & Hammer baking soda), is considered to be the creator of the reverse merger back in the 1950s. He invested in a shell company and merged his company, now the highly successful Occidental Petroleum into it.
Not all reverse mergers are employed as a strategy to go public. When ABC Radio and Citadel Broadcasting Corporation merged the intention was to transfer ABC Radio from its parent company, Disney, to a new entity.
Both Texas Instruments and Tandy Corporation, the parent company of Radio Shack, (who coincidently sells Texas Instruments products in their stores), each went public with a reverse merger. Nationally known restaurant chains such as Burger King and Jamba Juice also went public via the reverse merger, as did Waste Management, another profitable company.
But perhaps the example that holds the most weight is that of the original US Stock Market. After the New York Stock Exchange was acquired by Archipelago Holdings, the newly formed NYSE Group determined a reverse merger was the most effective method to achieve their goal of going public to raise capital.
The list of famous, successful businesspeople and corporations who have used a reverse merger is long.
We have illustrated a few examples here:
- New York Stock Exchange
- Berkshire Hathaway (Warren Buffett)
- Ted Turner
- Anthony Robbins
- Muriel Siebert
- Armand Hammer (Occidental Petroleum)
- Burger King
- Jamba Juice
- Texas Instruments
- Waste Management
The Truth about Public Shells and Reverse Mergers
You do not need a public shell to go public. However, if you are in a consulting capacity, for example, or an attorney that advises private companies, you may benefit from having a public shell company. We can form a new shell company for you.
If in the future you find a company that would like to go public quickly, you will have the ability to assist your client in doing so. This type of shell is ideal for companies you may identify in the future that would benefit from being a public entity.
Blank Check Company Compared To Trading Public Shells
There are 2 kinds of public shells. There is a big difference between them. One can help speed up the process to become a public company. These are called virgin or blank check companies. A Securities and Exchange Commission reporting blank check company is a public shell. They have no operating history and are formed to become SEC reporting public companies to find and merge with a private company. Many investment banks and consultants use this type of public shell company to merge a client into since some funding sources require a company to be public before they can invest.
The type you want to avoid is the old trading public shells that had a previous operating business in them. A reverse merger with a public shell can be expensive if you use a trading shell with a symbol. The public shells that are blank check companies are much more affordable and preferred by the investment community.
The type of public shells preferred by the investment community are Securities and Exchange Commission reporting blank check companies. These SEC reporting public companies can be helpful in that they can help you become a public company practically immediately. These types of public shells are well regarded because they were formed only to find a private company to merge with. They never had an operating business in it. They are often used by investment funds.
We assist companies in going public on the NASDAQ, NYSE, AMEX as well as the OTCBB. If you want to go public you can begin trading over the counter on either the Over the Counter Bulletin Board or the Pink OTC Markets. For example, to start trading on the Pink Sheets is very fast. A company can always move up to the FINRA OTC Bulletin Board or NASDAQ later. Some companies choose to start out on the Pink Sheets and later move up to NASDAQ or the NASD Financial Industry Regulatory Authority OTC Bulletin Board.
A company can also elect to begin trading on the FINRA OTCBB from the outset. If you have identified a public shell and you want us to do the due diligence please contact us. When dealing with reverse mergers and public shells it is always recommended that you have a very experienced securities attorney assist you. We can take your company public directly.