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You might think that if any group of private-company executives could be expected to choose an initial public offering (IPO) to take their organization public, it would be those at the helm of the New York Stock Exchange. Not so.
Instead, the NYSE and a small but growing number of companies are going public through what's known as a reverse merger. Fifty-five reverse mergers were completed from January 1 through June 28 of this year, compared with 89 in all of 2004, says Steven Dresner, publisher with Jericho, N.Y. based Deal Flow Media, Inc., which publishes The Reverse Merger Report.
In a reverse merger, a private company is acquired by a dormant public company, usually a shell corporation with no assets or liabilities of its own. The shell issues such a large number of shares to the private company that the private company's investors end up owning most of the shell's stock. This transfers ownership of the shell to the private company, effectively transforming the private entity into a publicly traded operation. The post-merger organization usually changes the shell's name to reflect the new business.
A reverse merger typically runs about half the cost of an IPO and requires only about 20 percent of the time commitment, according to Dave Brigante, President of the Halter Financial Group, a Plano, Texas based firm that advises companies seeking to access the U.S. capital markets. Halter Financial specializes in reverse mergers.
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