http://toms-shoes23.webs.comReverse mergers, or OTC Shell deals, are done to finance growing companies. If successful, the company achieves a high stock price in the aftermarket and then sells stock at a discount privately, probably in a PIPE deal,occhiali oakley uomo.
Reverse mergers almost always lead to a bad aftermarket,alviero martini outlet. The usual reverse merger stock chart looks like a profile of a waterfall as the stock starts trading on high expectations, only to sink to near zero bid after a time,ray ban wayfarer.
Many reasons exist for a bad aftermarket stock price,oakley 2013. First, the shell promoters will almost certainly be selling their stock. This stock will be a substantial part of the company. Even making an agreement to lock up their stock may not help much if they have given stock to others or kept stock in other accounts that are not part of the lock up agreement.
Next, the market makers may have accumulated the stock when it is down,occhiali ray ban. When I was making markets in over 300 stocks,longchamp milano, inevitably one of them would sink to next to nothing. When the stock went to a very small bid,cheap toms shoes, I would accumulate the stock on the chance that the company would later be used in a reverse merger,Aftermarket Problems Of Reverse Mergers Or Otc Shells,abbigliamento online. As the price was extremely low, it cost me little to accumulate a large number of shares,louis vuitton outlet. When the reverse merger was announced,toms, I would be eager to sell my position,oakley frogskins ebay. After selling the position, I would cease making a market in the stock,louis vuitton borse. So the company that anticipated having me as a market maker lost on both counts – I was a seller and I left the market.
There were also other market makers who specialized in low priced stocks. Unlike our firm,polo ralph lauren borse, they had limited funds to take positions in stocks,longchamp shop online. The liquidity they actually supplied to the market was minimal,louis vuitton outlet. When the stock went up,abbigliamento online, they would also sell and possible cease making a market.
Thus,Aftermarket Problems Of Reverse Mergers Or Otc Shells, many reverse merger companies that thought they were buying a shell with market makers were in fact getting no real market.
The only reason for a market maker to trade a stock is because he believes he will see a volume of trading that will allow him to profit from the spread. He knows that unless the company engages in aggressive investor relations, there will be no volume in a small company’s stock and the price will go down. No new buying = price declines.
This bring us to the next reason reverse merger companies have bad aftermarkets – they have been told by their attorneys, their financial consultants,alviero martini portafogli, and the people who sold them the shell that once they are public, the company will have unlimited access to money.
In actual fact,ralph lauren saldi, all the company gets is an exit strategy that may be used to entice investors. You still have to grab an investor, wrestle him to the ground and extract his wallet. As the attorneys,occhiali ray ban, the financial consultants, and the reverse merger company all make their money when the shell deal closes,ray ban wayfarer, they somehow neglect to explain what happens after the close. That is not their problem,longchamp outlet; it is yours,occhiali oakley.
The final reason reverse merger companies do not do well in the after market is the most evil. They may fall victim to short sellers,occhiali oakley.
Wall Street,Aftermarket Problems Of Reverse Mergers Or Otc Shells,occhiali oakley, as everyone should be aware, is not a place where mercy reigns supreme,polo ralph lauren. It is a place inhabited by sharks,longchamp outlet. Sharks prey on the weak and the unwary,longchamp borse.
Short sellers know that small companies need to have a continuous stream of money to grow,louis vuitton borse. Growth requires constant new money,polo ralph lauren, even profitable growth,occhiali oakley donna.
To get this money, reverse merger companies,longchamp borse, in fact all companies,borse alviero martini, need to keep their stock price up. When the shorts raid the stock, they know that pushing the price down can destroy the company. A low stock price not only stops the company from getting the money it needs or getting the money it needs at a good price,occhiali oakley, it tells everyone that the company is weak and likely to die,Aftermarket Problems Of Reverse Mergers Or Otc Shells,alviero martini outlet. Customers,alviero martini orologi, employees and investors will exit and avoid a company with a low stock price,cheap toms. If you do not know how to survive the ravages of short sellers,borse alviero martini, your company is in dire jeopardy.
In sum,cheap toms, doing a reverse merger without a complete plan for the aftermarket is a trap for the unwary. A reverse merger company that is sold a bill of goods about a reverse merger being the total solution is likely to find its stock price headed down. You must have an investor relations and fund raising plan that includes recruiting investors and market makers and fighting off attacks by short sellers.