Pros And Cons Of Reverse Mergers – Part 2

by Bullhunter on May 18, 2010

Pros And Cons Of Reverse MergersAfter having introduced the basic concept of reverse mergers, we’re now going to look at their crazy nature. Full of ups and downs, reverse mergers can mean a lot in terms of investment potential.

You’ll want to know what to look out for, and how to spot a good deal. This all depends on understanding and recognizing the advantages and disadvantages that are associated with a reverse merger.

Advantages Of Reverse Mergers

In most cases, a carefully executed reverse merger can bring a great deal of fortune to both companies involved. One of the greatest benefits of  reverse mergers can be found in having a private company become public for a much lower cost and within a shorter time-frame than with an initial public offering, or otherwise known as an IPO. In fact, sometimes the savings can exceed more than a year’s worth of time.

Another advantage is that public companies have higher levels of valuation when compared to private ones. Reasons for this range from higher liquidity, greater levels of public awareness, and fast rates of growth. Reverse mergers are also far less likely to be put on hold or canceled due to market conditions.

Disadvantages Of Reverse Mergers

Reverse MergersHowever, with so much being changed in such a complex way, sometimes reverse mergers can incur negative outcomes. Some of the most common come as circumstances that weren’t foreseen, such as lawsuits for liability and record keeping that’s just plain sloppy. This is something you definitely need to check out when looking into a reverse merger before investing.

Another possible outcome of reverse mergers are reverse stock splits. These can significantly reduce the volume of shares that are owned by stockholders, which is often seen as trouble in terms of company value.

Another factor that much be considered regarding reversed mergers is that the CEOs of private companies often have next to no experience or nothing at all when it comes to running and managing a public company. Look into the companies first before making your investment choice.

As with any investment, you have to measure what’s in it for you. A reverse merger depends on multiple elements and circumstances that you’ll need to consider before making a decision. The next entry in this series is will cover what you can do to spot  reverse mergers and what it means for as far as making money is concerned. Come back soon!

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2010

{ 1 comment… read it below or add one }

Jazz Salinger July 30, 2010 at 8:30 pm

Hi Sean,

I don’t know that this is a strategy for beginners. I think it’s going to take me some time to spot a reverse merger and be able to jump on the bandwagon in time to make a tidy profit.

It just seems like this form of investing is fraught with danger. There’s a lot than can go wrong for me here.


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