Buzz Archive:
PE Buzz: Reverse Mergers: After Market Performance

by Joseph W. Bartlett, Founder of VC Experts.com, 6/7/2007

For those investors and their advisers interested in alternatives to traditional public offerings on NASDAQ, one such alternative is the reverse merger into a public shell, (discussed with more data analytics and more detail at Premium Content Section 8.15 of The Encyclopedia of Private Equity and Venture Capital). The discussion incorporates a study undertaken by a then student of mine at NYU law school, Paul Kunz, the conclusion of the study is summarized as follows:

We were able to identify 102 traceable companies which had undergone the predicated mergers and we compared the after market results to a chosen benchmark.

The final statistics for the identified 102 companies indicate that only 17 companies produced positive investor returns, with 12 outpacing our conservative benchmark. Only two companies in the survey paid dividends. If the paper returns were discounted for the applicable bid/ask spreads, 14 companies would have posted positive returns, with only 9 companies besting the benchmark.