Reverse Merger - Chinese Style
Copyright Jack Mixner. 714 449 1040. www.mixnerstrategy.com
Every now and then, I hear a passionate discussion about reverse mergers. Speaking usually is an entrepreneurial CEO who desperately needs cash to speed growth of her business. I listen for a while and ask a couple questions like:
- "Are you aware of the accounting costs related to owning a public company?" or
- "Why can't you grow your company using cash flow instead of merging with an essentially failed and empty shell in order to have the abilty to issue (read that, sell) stock to the public?"
It looks the like the latest round of reverse mergers are originating in China (Einhorn). Smaller companies, starved for cash, are looking for any way to raise capital. To them, the risks of a reverse merger make sense.
Whether they will ever raise any capital is another whole question.
Looking at a reverse merger to make your company eligible to raise capital? Ask two questions:
- Who is going to make more out of the merger, you or the broker/lawyer involved?
- Will you ever be able to raise enough capital this way?
My advice? Look hard at your marketing plan. Increase revenues in order to generate capital for expansion.
Reference
Einhorn, Bruce and Frederik Balfour. Going Public, Chinese Style. BusinessWeek. 5 March 2007. Page 40. http://www.businessweek.com/magazine/content/07_10/b4024067.htm?chan=search