Every year several private companies become public companies through the process of a reverse merger. These mergers are easier and quicker than an Initial Public Offering (IPO). When the private company mergers with the already public company, the new entity is a public corporation. The private group will purchase enough shares of the public company to take control and then exchanges its private shares for public shares.
Advantages of the Reverse Merger
1) The private company gains access to public markets in an efficient manner. They can increase their investor base and more easily acquire new funds.
2) The process is faster than the formal IPO process.
3) The overall costs can be smaller as fund raising is often avoided.
Disadvantages
1) The company needs to have an outside firm perform a public company audit to be SEC Compliant.
2) The process is often viewed with skepticism by investors when compared with the traditional IPO.
3) The NYSE and NASDAQ exchanges have new (2011) seasoning rules that require these new entities to stay out of the main markets and remain over the counter for a full year.
2019 Reverse Mergers
Diginex, a blockchain financial services company, was part of a reverse merger with 8i Enterprises Acquisition Corp. 8i was a publicly traded SPAC (special purpose acquisition company). Crypto currency industry players have found the reverse merger to be helpful in gaining the advantages we mention earlier, visibility, avoiding regulations, and gaining a investor base.
OKCoin, a crypto exchange, took control of the publicly traded LEAP Holdings Group (construction) with a $60 million investment.
Huobi, a crypto exchange, purchased shares of Pantronics Holdings LTD for $70 million to go public.
