Reverse Mergers

Apogee's partners work closely with the management of public and private companies, their legal counsel and public accounting firms, to achieve the company's goal to become public, either through the filing of a registration statement, or a reverse merger transaction with an existing public company. Apogee also assists these companies with their corporate management structure, maintenance of corporate books and records, preparation and filing of documents with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) necessary to stay in compliance with public reporting guidelines, the dissemination of press releases, and corporate due diligence in connection with acquisitions.

Why Consider a Reverse Merger?

A "reverse merger" is a method by which a private company can become public. Typically, the private company merges with a public company that most often has no assets or liabilities. The assets and liabilities of the public company is not what is attractive to the private company; what makes the public company attractive to the private company is that the corporate "shell" structure of the public company remains intact, including (1) its registration with the Securities and Exchange Commission, (2) its shareholder base, and (3) its publicly traded stock. Once the private company merges into a shell structure such as this, the private company becomes a public entity.

As a result of this merger transaction the private company typically acquires a majority (usually over 90%) of the public company's stock, changes the name of the public company, and appoints and elects new officers and directors.

The major advantage of reverse merger transactions is the speed with which the merger is complete and the private company becomes a public company. Other advantages include lower associated costs and less stock dilution than going public through an initial public offering (IPO) handled by a brokerage firm. While the process of going public and raising working capital is combined in an IPO, these functions can be separated in a reverse merger, allowing a company to go public without raising additional capital.

The benefits of a reverse merger transaction also include, but are not limited to, the ability (1.) to make acquisitions of other companies using the publicly traded stock, (2.) to attract and retain key management through employee stock ownership plans, (3.) to establish a recognized market value, and (4.) to provide a gradual exit strategy for retiring business owners.

While the SEC does not keep statistics on the number of reverse merger transactions, a recent CNN online article disclosed that industry experts believe that hundreds of small to mid-sized companies go public each year through a reverse merger. We believe that the resurgence of reverse merger transactions is a by-product of the current difficult IPO market that is forcing smaller companies to look for alternative funding channels.

You may have heard of the following companies that went public through a reverse merger: Allied Waste Industries (NYSE: AW), Blockbuster Entertainment (NYSE: BBI), Occidental Petroleum Corporation (NYSE:OXY), Siebert Financial Corporation (FINRAaqNM: SIEB), Waste Management Inc (NYSE: WMI), and RadioShack Corporation (NYSE: RSH), to name a few.