At Acquis Capital, we are often approached by private companies that are in the process of going public through a reverse merger transaction (a/k/a: reverse takeover). Often these private companies are seeking capital to purchase a public shell (a/k/a: a public vehicle), “clean up” a shell (eliminate old debt, complete past-due fillings, hire attorneys and accountants to help finalize the reverse merger transaction, etc.), and grow their business and/or do an acquisition.
Purchasing or cleaning up a public shell is an expense that most investors have little interest in funding. So, how do you buy a public shell with limited capital? The answer is very similar to a post on Acquis’ blog titled “Micro-Cap Acquisition Financing: Seller Financing Makes Any Acquisition Possible“. In a previous posts on this blog I discussed how a “flexible seller is the key to making any acquisition work” and the same is true for a reverse merger transaction. After all, a reverse merger transaction is a merger!
As with traditional m&a transactions, stock consideration and seller notes are the only things a skilled negotiator needs to complete a reverse merger transaction. I’ve seen private companies get great “clean” shells for only seller notes and/or less than 10% equity. I’ve also seen companies pay $1,000,000+, over 10% equity, and seller notes for nearly identical shells to those acquired with no cash down. I even seen companies pay hundreds of thousands of dollars for shells that needed A LOT of expensive work to clean the shell up to the point where it was actually usable!
With a good “shell broker”, an exciting story, and the ability to “sell” a shell owner on your business; anyone can finance a reverse merger transaction with little or no cash down.
Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisition funding. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.
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