Shells can come in many different forms. I have seen them with as little as a million shares upwards to hundreds of millions of shares. The more shares the majority shareholders of a company can deliver (the “Seller”) to a potential company who wants to buy the Shell (the “Buyer”) the better it is for buying public. The “float” represents the shares that remain and are not sold to the new Buyer. These are usually the small investors who purchased shares in the original company that failed to perform. In most cases the new Buyer will reverse the stock (different from the reverse shell merger) so that these shareholders do not have enough shares to hurt the new company’s stock price (Buyer) should they decide to sell after the reverse shell merger has taken place.

The key ingredient for a successful reverse shell merger is for the Buyer to make sure they have a small float after the transaction is completed. Why, you may ask? Because the more shares that are left in the float the greater the possibility of those shareholders to hit the bid and drive the stock down. Remember, these are leftover shareholders who have written off this stock or may have received founders stock at the company’s inception or for services rendered. They usually have little or no cost basis for their shares. Therefore, they are highly motivated to dump the stock.

Shell Prices

Shells are currently priced from $500,000 to $800,000. There are many variables to consider when purchasing a shell. The pricing is determined by current market conditions, percentage of the total number of deliverable shares, the number of shareholders, how the free trading shares are distributed and other factors including liabilities, outstanding debt, etc. The “cleaner” a Shell is (i.e. non problematic and transparent) the more value it has.

Unless you are very experienced in this arena, you should use an experienced SEC attorney to review the Shell you are seeking to purchase. Simply put, if you do not know what you are doing you can have your ass handed to you in the marketplace after you have completed the reverse shell merger.

So why to the prices of Shells keep increasing? The two biggest reasons: 1) there is a short supply of quality Shells available in the marketplace and 2) there are a multitude of foreign companies that are seeking to be listed in the US.

Higher Shell Prices: Good for investors

As an investor you should be happy that Shell prices are rising. Why? Because the higher the price a company pays for their Shell the more likely they are “a real deal.” Let’s face it, no company is going to pay $800,00 plus accounting fees, attorney fees, etc., unless they are generating cash flow or have substantial financial backers. This means that the quality of the companies going public are only going to get better and better.

 Want to learn more about evaluating a reverse shell merger? Click here.

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