DealLawyers.com Blog

Despite a bit of a checkered reputation, non-SPAC reverse mergers are still a thing, and this excerpt from a recent WilmerHale memo (p. 14) says that there’s been an uptick in these deals and that, for some companies, they are an attractive alternative to an IPO:

The trend of declining public company valuations (including a surprising number of companies trading at values below their net cash), coupled with challenging conditions in the traditional IPO market, has led to a significant uptick in reverse mergers with publicly held life sciences companies since the beginning of 2022. These transactions have originated most frequently with pre-commercial life sciences companies that are listed on a major exchange and suffer a scientific setback or other disruption leading to a restructuring (or winding down) of operations—often while holding significant amounts of cash.

In these circumstances, the reverse merger transaction results in the public company effectively reinvesting its cash into the business of the private company, giving the public company’s legacy stockholders the opportunity to continue to hold stock in a new business while the formerly private company takes advantage of the public company’s existing cash and stock exchange listing.

The memo goes on to review considerations in establishing the exchange ratio in a reverse merger, the SEC filing and review process, as well as issues associated with a simultaneous “sign & close” structure & the SEC’s potential classification of the public company as a “shell company.”

– John Jenkins