Acquiring a Public Shell Company (#33)

In this episode, we discuss the considerations involved in buying a public shell company. Key points made in the podcast are:

  • A public shell is a public company that has no business activity, and which is no longer filing periodic reports with the Securities and Exchange Commission (SEC).

  • A private company buys a public company in order to go public through a reverse merger transaction; this can be done in as little as three months.

  • A key risk is that the shell may have undocumented liabilities, which the new owner may have to pay.

  • Securities attorneys usually manage a group of shells, which they preserve for sale to others. This involves letting them lie fallow for several years, with no activity, while continuing to have their books audited. It costs about $25,000 per year to operate a shell in this manner.

  • Once a private company buys a shell, it swaps the shares of its own shareholders for those of the shell, and then has to register these shares with the SEC. The shares cannot be sold until they have been registered. A key problem is building trading volume, or it will be quite difficult to sell the shares.

  • The pre-existing shares of the shell are more likely to be sold at this point by their owners, since the share price will likely have increased.

  • The new owner has to issue a Form 8-K to the SEC as soon as the acquisition is completed, which is a time-consuming chore.

  • Estimate $15,000 per month to maintain a public company once the shell purchase has been completed.

Related Courses

Mergers and Acquisitions

Public Company Accounting and Finance