With the IPO market stagnating, reverse merger transactions outpaced traditional IPO’s significantly during the third quarter, according to Deal Flow Media.

Forty four companies completed reverse mergers with public shells during the third quarter, which was a 4.3% decrease from the previous quarter and a 12% drop from the 50 deals completed in the year-ago quarter. The quarter-over-quarter decline was due to the typically sluggish summer months, which have historically caused a dip in deal completions.

The increased activity in the reverse merger market is due to a few different contributing factors, namely the high cost of a traditional IPO and the obvious lack of small cap retail brokerage firms. With fewer investment banking firms willing to sponsor small IPO’s, private companies are looking for other ways to enter the public markets, and a reverse merger is the most popular strategy

Going public through a reverse merger allows a private company to go public quicker, cheaper and with less stock dilution than through a traditional initial public offering. The reverse merger deals have also been growing in size. The average deal that includes a PIPE transaction has a market cap of $50 million, well above the shell mergers of yesteryear. The reason? The barrier of entry has been raised in the last two years. It now costs approximately $600,000 to $900,000 to buy a clean shell these days and the prices keep rising. So the shells are attracting a more mature, profitable company. A well managed, profitable, growing company with good growth potential will generally do well as a public company. For small companies the reverse merger process may be the best way to put that privately held company in front of the investing public.

Ventana Capital Partners provides small, privately-held companies that wish to go public with professional business development consulting services. Our main focus is working with privately held businesses looking to go public through the popular “Reverse Shell Merger” process.

We are currently looking for clean, publicly traded shells which may be available for reverse merger transactions in 2007, and privately held businesses that may be planning to access the public markets utilizing the reverse merger process.

Please feel free to contact us to discuss the possibilities of going public through a reverse shell merger.

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