The January issue of The Reverse Merger Report provides a great deal of detail about the market for reverse mergers in the year just passed. Bottom line: pretty much everything was up. Number of deals (246 deals, a 25% increase), number of Chinese deals (81 deals, up 76%, still about one third of all reverse mergers), number of deals including financings (66, about 20% above last year but still only about 26% of all deals) and average size of financing ($5 million, double that of 2009). But while the numbers are good, especially the total deal numbers, let’s remember we’re comparing against 2009 which was a scary watershed low for so much that is Wall Street.
And the trends are not all good. The number of deals including financings in the second half of the year was half of that in the first half of 2010. What hit in the second half of the year? Mainly, the short selling and class action cases against Chinese companies which started around mid-year. One fund manager said in the RMR that there is now a cloud over the China space. Most think this is not a long term but a short term issue, as we have discussed ad nauseum in this (cyber)space. No question the China deals are moving slower, investors are being more cautious and the SEC is applying more scrutiny. The cautious thing is not necessarily bad. We are seeing a “flight to quality” in terms of accounting, law and other advisors, and this observer has no objection to this.
As everyone looks for the “next China,” the RMR reports that there was no increase in the number of non-China foreign deals (32 in 2010 vs. 31 in 2009). But Canada dominated with 10 deals, so only 22 deals other than China and Canada last year. So what’s next?? Watch this space.