Switch to ADA Accessible Theme
Close Menu
Florida Securities & Business Lawyer
Call Today For A Consultation!
Securities And Business Law Attorneys
Areas of

What Is A Reverse Merger?


A standard merger is when a public company acquires a small private company, either absorbing its assets or guiding it through an initial public offering (IPO). However, a “reverse” merger or “reverse IPO” is possible, and happens when a private company effectively goes through an IPO by acquiring a company that is already public. This can be a complex process, so engaging an experienced business law attorney is highly recommended.

Why Choose Merger?

One might wonder why a company would want to go through the long procedure of merging with another company other than to acquire its assets, but sometimes, merging with a small public company is a good option for an enterprise that wants to go public quickly. Federal securities law regulates the procedures for an IPO, which can take anywhere from six months to over a year if done in the standard manner.

By comparison, a reverse merger will generally take much less time because it can legally bypass some of those procedures without running afoul of the Securities & Exchange Commission (SEC). It does mean that the private company must have a sizable nest egg, however, as no capital is raised in a reverse merger (unlike in a traditional IPO), but if cash is not an issue, this procedure may still be preferable for some businesses.

Potential Risks To Investors

While there are numerous advantages to a business in pursuing a reverse merger, it is important to be aware of the details of the procedure, because a failure to do so can place your investors in a bad position. It is unfortunately not uncommon for companies to fail after reverse mergers, either because of cash flow issues or because details are missed – for example, the merged company may not meet the qualifications to trade on the same exchange as the public company pre-merger, which can halt trading for long enough to cause serious financial issues.

On the investor’s side, there may simply be a change in the company culture, or a change to the amount of benefits being a shareholder can bring. If there is enough of a change where investors look to sell en masse, this can cause major problems for a company seeking to grow publicly. If a reverse merger happens, it must be done carefully, with full transparency.

Call A Seminole, FL Mergers Attorney

Depending on the circumstances, a reverse merger can be an appealing option for many businesses. A Florida mergers attorney from the Hunt Law Group can advise you as to the best course of action. Contact our office at (727) 421-0444 to schedule a consultation.




Facebook Twitter LinkedIn
Protect Your Business
By submitting this form I acknowledge that contacting the Law Office of Clifford J. Hunt, P.A. through this website does not create an attorney-client relationship, and any information I send is not protected by attorney-client privilege.
MileMark Media - Practice Growth Solutions

© 2019 - 2024 Law Office of Clifford J. Hunt, P.A. All rights reserved.
This law firm website and legal marketing are managed by MileMark.