Strong First Quarter For Reverse Mergers

Strong First Quarter For Reverse Mergers

Despite, as The Reverse Merger Report put it, "continued attacks from short sellers, mounting fraud allegations, and numerous ongoing investigations of Chinese companies by the Securities and Exchange Commission," we completed the first quarter of 2011 strong in terms of number of reverse merger deals done.

The RMR reports that 58 reverse mergers were consummated in the first quarter, which basically matches the five year average of 56. Interestingly, though, the number of deals not including a contemporaneous financing has gone way down. This while the capital markets have strengthened well, so it's a bit of a head-scratcher. Companies we are talking to say they'd rather get public first then go seek financing, believing, probably correctly, that the valuation they will get after they are public will be higher than at the time of going public. So that may be the reason.

China, amazingly, continues to represent about 1/3 of all deals, with 21 Chinese reverse mergers getting done in the first quarter. But almost none of them included a financing.

Are people writing off reverse mergers? Hope not, but clearly, as one quote in the article agreed, we are facing a setback because of the problems in China. I agree with another quote, noting that the end result after China shakes out will be smarter, stronger companies utilizing IPO alternatives and understanding what they are getting into.

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.

For more information about LexisNexis products and solutions connect with us through our corporate site.