2006 Year in Review: A Great One

Greetings blogees. According to DealFlowMedia’s The Reverse Merger Report (my favorite periodical!), 2006 was a banner year for reverse mergers. Over 200 deals were done, eclipsing the number of IPOs for the year. About half the deals either were self-filings or mergers with “virgin” shells, showing the growing power of these relatively new trends. The average size deal for the year was a company with a market capitalization upon the merger of over $50 million.

SPACs continued to proliferate with over 100 specified purpose acquisition companies either public or in the process of getting there. The involvement of Citibank, Deutsche Bank and others in underwriting SPACs has helped strengthen their legitimacy and place in the market. High profile deals like the Jamba Juice merger with a SPAC also helped, as did the addition of major players like Steve Wozniak, founder of Apple, and Michael Gross, former partner of Apollo, on the management teams of SPACs.

Almost a quarter of last year’s deals involved foreign companies merging with US shells. The vast majority of those were companies coming from China. Several major players in the RM space have set up permanent offices or personnel in the PRC and have committed substantial resources to sourcing and analyzing deals there. Others are taking 3-4 trips a year to China to cement relationships and look at companies.

The regulatory environment has improved since the difficulties over Rule 415 last fall. The SEC is poised to announce a group of proposals before the summer (as mentioned in a prior entry) that are expected to further improve things for smaller public companies, including, hopefully, reducing the holding period under Rule 144 for unregistered securities from one year to six months, and allowing companies to continue to utilize the “small business” lesser disclosure rules until they hit $75 million in revenues (currently it is $25 million).

The Reverse Merger Association was established last year as our industry’s first trade assocation. Our RMA board has been busy reviewing applications for membership, conducting background checks and making sure all members are as committed as we are to the “high road” approach to dealmaking. A number of members have already been admitted (including several at the patron level) and we are looking to grow the group so that our industry can work to speak with one voice to the regulators, and share information and deals.

All in all, the growing popularity of IPO alternatives has enhanced opportunities for businesses throughout the world to find faster, cheaper, simpler ways to access the US capital markets and achieve their goals.

PS Happy birthday to me!

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