A Sophisticated Transaction
Apollo Capital also handles reverse mergers, the acquisition of a public company by a private company, allowing the private company to bypass the usually lengthy and complex process of going public. A reverse merger can be completed in as little as 30 days, conditions permitting (which means, among other things, two interested and willing parties, each with competent securities counsel). Reverse mergers, also known as reverse takeovers, is when you merge what is called a public shell (also referred to as a public shell corporation or public shell company) with a private business entity. A reverse merger with a public shell corporation does not raise capital. The shareholders of the private company purchase control of the public shell corporation to merge them together.
After merging the active business enterprise with the public shell company, the result is a public company with an active business in it. The shareholders now own a majority of the shares in the public company and control the board of directors. The old public shell then changes its name to the name of the private business that was reverse merged in during the reverse merger. With a reverse merger, the deal rests on whether the people who control the shell like the private company and desire to be acquired by it. Market conditions have almost no bearing on the situation. The lack of an earnings history does not prevent a privately held company without this track record from completing a reverse merger. In most cases money is flowing to companies that are already public, so the obvious fact is that many companies that want to tap the PIPE (Private Investment in Public Equities) market have to get public through other means and many of them are looking at the reverse merger process.
Another factor that is helping the perception of the reverse merger is that increased regulatory scrutiny has made the process more difficult. A reverse merger, done properly, is a sophisticated transaction. Required filings with the NASD, SEC or both will most likely be reviewed by examiners at these agencies and reviewed with the same degree of scrutiny as they would an IPO.