Should my company go public by reverse merger?

Yes, it is faster to complete a reverse merger than initial public offering, direct public offering or direct listing. However, it isn't as fast as many believe for several reasons:

1. It takes time to identify a publicly traded shell that is interested in a reverse merger transaction;
2. It takes time to negotiate a transaction whereby the private company officers, directors, management and shareholders would take control at closing;
3. It takes time to complete thorough research and analysis of the public company and their financial statements;
4. It takes time to settle any outstanding lawsuits, debt and contingent liabilities.

These steps can take several weeks to several months.

Upon closing of a reverse merger transaction, the private company becomes publicly listed but is generally not immediately compliant with Securities and Exchange Commission rules and regulations.

To satisfy the SEC reporting issuer requirements, a company must provide audited financial statements and updated business disclosures. This typically takes at least two or three more months to address.

While some reverse merger transactions can occur quickly, most take several months from identifying a public shell until becoming an SEC reporting issuer. So while the process is faster than alternative methods of going public, it is never as fast as it initially appears.

No, it is substantially less expensive to go public through a direct public offering or direct listing. Reverse mergers are incredibly more expensive than they appear for several reasons:

1. The upfront cost to acquire control can vary based on whether it is non-trading (typically nearly worthless) or trading. Public shells that are trading on the Pink Sheets are worth very little while control of a public shell trading on the OTC QB are often offered for more than $350,000.
2. In addition to the cost of acquiring control of a public shell, a private company may also incur broker fees, legal fees, auditor fees, accounting fees and other expenses related to finding, analyzing and closing a reverse merger transaction. These fees can easily exceed $50,000.
3. When merging into a public shell, the private company also incurs the costs associated with settling any lawsuits pertaining to the predecessor business and settling any outstanding debt or other liabilities.
4. When merging into a public shell, the new "inhabitants" (i.e. the private company officers, directors, managers and shareholders) become at-risk for any contingent liabilities of the predecessor business, such as those relating to product liability or personnel issues.
5. After closing a reverse merger, the new inhabitants need to comply with the disclosure and transparency requirements of the Securities and Exchange Commission and stock exchange. These accounting, audit, legal and regulatory expenses can easily surpass $100,000.

While the upfront cost to acquiring control of a "clean" shell might appear relatively inexpensive, the total cost of a reverse merger is significantly higher than alternative methods to going public.

No, any company can go public through a direct public offering or direct listing. There are no traditional business metrics that need to be satisfied. Even a recently incorporated startup with no revenue could start the process to go public today if it made sense to do so.

While it will take a bit longer, any company can go public through a direct public offering or direct listing at significantly less cost, with no contingent liabilities and substantially less risk.

If you're still seriously thinking about completing a reverse merger and are ethical, honest, hard working and growth-minded, please call to discuss our reverse merger consulting services or consider our direct listing services.