Going Public by Reverse Merger into a trading public shell company

Going Public through a Reverse Merger with a Public Shell Company

The main benefits to going public by reverse merger into an OTCBB public company shellare speed of going public and an already existing shareholder base. The benefit of an existing shareholder base is twofold. First, it saves time and second, itmay increase the likelihood that a liquid market will develop sooner. On theflip side, an existing shareholder base can also be a big liability, as hostileshareholders may want to sell as soon as practicable, which can literallydestroy a newly trading company’s share price.

1.The first step in completing a reverse merger is to locate a 1934 Exchange Act United States shell company (the “Public ShellCompany”) which has no or minimal operations and is listed on the OTC BulletinBoard.  You can begin your search by Googling "public shells for sale". The Public Shell Companyand the Company will enter into a letter of intent indicating the partiespreliminary intentions to engage in a reverse merger transaction which will besubject to the satisfactory completion of due diligence by both parties.  Going Public, LLC helps the Companylocate and evaluate an appropriate Public Shell Company based on many factorsincluding the consideration willing to be paid by the Company for the PublicShell Company, the amount of acceptable dilution willing to be endured by theParent and the appropriate mix of cash and equity paid to the Public ShellCompany owners.

2.The second step is for the Company to enter into areverse merger transaction through a share exchange with the Public ShellCompany which has no or minimal operations and that is listed on the OTCBulletin Board. Pursuant to the share exchange, the Company will exchange allof its shares of stock for shares of the Public Shell Company. As a result ofthe share exchange, the Company will become a wholly owned subsidiary of thePubic Shell Company.  The price ofa high quality U.S. public shell company listed on the OTC Bulletin Board typicallycosts approximately $500,000 to $750,000 or more.  The purchase price, as well as, the mix of consideration(i.e. cash vs. equity) typically depends on the type of foreign operatingcompany that will undertake the reverse merger. Specifically, the stronger theforeign operating company is (revenues, profits and an operating history), themore willing the seller of the Public Shell Company is to reduce the cashportion of the purchase price and retain more shares of stock.  

3.The parties typically schedule a closing date thatnormally occurs within one to two months of the execution of the letter ofintent. In order to close the reverse merger transaction, the Company must havetwo years of audited financial statements prepared in accordance with GenerallyAccepted Accounting Principles (“GAAP”), as well as up to date reviewedquarterly statements.  Thesefinancial statements must be filed in a “Super 8-K” with the SEC within fourdays of the closing date of the transaction.  The “Super 8-K” must include among other things, the termsof the transaction, a description of the operations of the Company and thefinancial statements. The shareholders of the Company will now control the OTCBulletin Board company which has its shares quoted on the OTC Bulletin Board.

Public shells for sale.

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  • 12/12/2009 10:22 PM Peter Swire wrote:
    Dear Sirs,

    I have a made a deal with a publicly traded Pink Sheet company which is having some challenges meeting closing deadlines. I suspect the deal will die though not of our doing. I need an alternative strategy to develop the GreenSafe project. Going public may be the answer at this time however it must be very fast.

    I would firstly suggest that you take a look at our website at www.greensafecanada.com to get a sense of the opportunity.

    We need a solid option to accelerate the business development at Caraquet, NB and for the plants which follow. What I am looking for is as follows:

    § A private equity placement

    § A reverse merger with an existing clean, shell with sufficient cash to satisfy our current capital and operating needs

    § A reverse merger with an existing clean, shell with modest cash levels but where a quick PIPE’s like deal can be orchestrated

    The key to this is timing – to find the partner or shell – negotiate the deal and fund. A bought deal comes to mind.

    Further, we will not pay advance fees if they want stock as well. There is enough profit on the stock available to satisfy any disbursements.

    As for a simple background to any party, consider the following:

    § GreenSafe has a proven management team

    § The technology is proven in Europe but not deployed in Canada or the US

    § We will have proprietary use of certain CFC conversion processes with no burning or incineration

    § Very high capacity plants capable of handling white goods through counter top appliances to e-waste

    § Our contracts with suppliers are long term

    § The demand for processing is far larger than we can imagine

    What we need for capital for each plant is as follows:

    § Working capital $ 2 mill

    § Building $ 12 mill

    § Three lines $ 16 mill

    Total is $ 30 million.

    We have already invested in excess of $ 2.5 million in the business.

    We can likely get a mortgage on the building and land for about $ 8 million. As for the equipment, we could get $ 12 million from European credit facilities. In essence, $ 10 million is the bare minimum. The full $ 30 million is better as it gets us more power to negotiate for the succeeding plants. Note that all of the money goes into hard assets!

    One of the things that investment bankers look at is the DCF of the after-tax profits. If I take the existing EBITDA and reduce it by 35% to allow for depreciation and corporate taxes on a public company, of first three years after tax profits become $ 27 million, $ 176 million and $ 277 million respectively. Using a DCF rate of 50% for these years and a perpetuity based on the 3rd year, it becomes $ 732 million. Given the fact that there is regulation in process to require mandatory recycling and there are companies already in this
    Reply to this
  • 4/21/2010 5:08 AM Stan wrote:
    great article. Thanks
    Reply to this
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