Finance December 12, 2013 Last updated January 11th, 2022 2,722 Reads share

How To Spot A Reverse Merger?

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When a certain private company tends to lose all its profit and is about to submerge, the best option to rise up and raise the capital is to take the reverse merger. This is the time when a private company will be able to embrace opportunities of becoming a public shell company. Shareholders will be receiving large amounts of ownership and at the same time take control of the board of directors. As the private and public company merge into one, reverse merger process is completed.

What do you get when two companies become one?

Picture how an investor profits in these situations. Read on as you learn on the advantages to performing reverse merger process.

  • Less money.Less time – Going through the reverse merger allows the private company to save money and time, not to mention the effort of going through the traditional way of going on public through an IPO (initial public offering). Normally, it takes a year or so to complete the process. However, when you go through a reverse merger, a private company can go public in a little less than 30 days.

  • The value of the certain company – Keep in mind that investors trust more on public companies rather than private firms. For some reason, they have higher valuations compared to private companies. Thereby, as the private firm goes public, it will increase its publicity and most of all growth rates speed to a higher level.

  • Tax shelter offered by the public company – In most cases, when a public company is in the verge of losing its power and profit, a percentage of it can be carried forward and then applied to the future income. As both companies merge, it is now possible for the public and the private companies to protect its profits from the future taxes.

  • Less likely to be canceled and placed on hold – This is what reverse mergers can take advantage of. Upon the adverse effects of the current market conditions, both companies can pull the equity markets off the table and allow it to rise up against the competitors.

In other words, you can imagine how a losing company rises up as it goes to public through reverse mergers. At some point, there may be drawbacks in taking this process.

  • There are just things that you cannot get rid of – This means, not all companies that have undergone the reverse merging process make it to success. There are some reverse mergers that turn out to be sloppy as executives and board of directors do not have the potentials to lead a bigger company.

  • When promises are made to be broken can be applied to some reverse mergers – At times, when they do only less than what was expected which would end up providing shareholders little to no additional value at all.


Investors would always look upon the status of the company before they invest. Going through the process can be stressing yet in the end would be rewarding. Just like looking for a piece of gold in the mines.

Images: ”An unusual reversed view of a ‘Fork In The Road /


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Alex Wilson

Alex Wilson

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