Facts on Shell stocks like.CHIP,NIFI,SNLV,and others.
Reverse Mergers: The New Alternative to IPOs
By Jack Burney
05/17/2000 05:28 AM CST
The best known way for a young company to raise capital is the Initial Public Offering, the
?IPO,? and most investors know what that is. An investment banking firm lines up a consortium
of brokers and brings out the shares of a company to be traded on the open market. These are
often the very first shares of the company that are available to the general public.
If the company already has a recognizable name and there is a lot of hype surrounding the
offering, only the brokers? best customers will get a chance to buy the stock at the offering
price. Conventional wisdom says that the stock price will likely rise well above the offering
level, sometimes even doubling or tripling or more. That means that average investors who
want to get a piece of that company end up paying several times as much they would have
liked, because they have to wait for someone to sell the IPO shares they bought only hours or
days before. But, unfortunately, that was the only way for them to get in ?early?. So, once the
stock hit its initial peak and started to go down, the fat cats who were really in early on the
IPO would sell and make a fantastic profit.
Besides alienating the majority of the investing public, there are two other problems that now
plague somewhere around fifty percent of all new IPOs. First, IPOs are no longer a sure bet to
rise, or even to be sold out. All too often, the price opens at the set figure and immediately
declines, sometimes taking months to sell out. Second, the IPO process takes a lot of time and
money to complete. For many companies that is simply not an option, or at least not a winning
situation. Time and money are the most precious commodities a fast-moving 21st century
start-up has, and if there is no guarantee of success, it can be a very risky investment for the
company to make.
That has left thousands of companies wondering why they should go through all the hassles
with underwriters, lawyers, accountants and the SEC mess, if there?s another way that is
quicker, cheaper and often has an equal or even better chance of succeeding.
That other way has proven to be the ?reverse merger.? Not nearly so well known as the IPO,
it is being used with increasing frequency by young companies who want to ?go public? without
the long wait, the prohibitive expenses and the need to jump through as many SEC hoops.
An example of its use were reported on this page in recent days. Oleramma, Inc. bought
BuckTV.com Inc. (OTCBB: BKTV) with stock and then assumed its name and trading
symbol. The company became ?publicly traded? quickly and inexpensively ? in 30 to 60 days
with minor expense. That?s what the reverse merger is most often all about, a short cut to OTC
Bulletin Board status.
For young aggressive companies that are anxious to raise initial capital to fund their operations
and to get its stock out there, appreciating in value, the reverse merger is more and more often
the path they take. The hang-up is finding the right company in the mood to sell. It helps if the
company is in a similar or related business, but it isn?t necessary. Many times they end up
merging with a ?shell? company that has little or no existing operations, just a publicly traded
stock. Whatever suitor is chosen, the end usually justifies the means.
Once the reverse merger is consummated, the real struggle begins. The company that was
taken over usually wasn?t doing that well or traded very widely, or it wouldn?t have had to sell
out. The surviving management then has the formidable task of building name recognition and a
viable investor base for their ?new? public company. Many rely on professional public relations
and investor relations assistance to help them spread the word and generate investor interest.
The reverse merger is one type of financial event that investors may want to pay closer
attention to in the future. Companies who pull them off are usually aiming for aggressive
growth. That means that if you know what to look for, you can often get in on the ground floor
of some real winners, much like the fat cats have done for years with the hyped up IPOs. So
watch for news and make sure you do your research, but don?t overlook those reverse
mergers. You never know what you?ll find.
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