A roadblock for reverse mergers
How a new SEC rule will make the deals less attractive as a path to the public markets
An SEC rule set to take effect next month will treat reverse mergers like SPAC business combinations, making it more challenging for companies using this path to the markets to raise follow-on capital. The effect will likely be fewer private companies choosing to go public via the reverse merger route.
Adopted in January and coming into force on July 1, the new Rule 145a was largely targeted at improving the disclosures and liability protections for investors involved in SPAC-related business combinations. But a section of the SEC rule goes further, effectively broadening the definition of a shell company to include any non-SPAC public entity with minimal ongoing operations that is involved in a business transaction in which a private company would become public...