Source: bloomberg.com — By Amy Or, August 29, 2023
Reverse takeovers are an alternative way to take a company public. Public listings anecdotally have a value up to $25 million.
When all else has failed and a publicly traded company has no product and no prospects, it still has one thing that is worth a pot of gold — its listing. These shell corporations are becoming sought after by companies looking to go public through reverse mergers — where a private company takes over a public one — as investors remain weary of initial public offerings, especially for biotechnology companies.
""The IPO market for biotech right now is not that open. It's cleaner, easier and quicker to do a reverse merger if you can find the right target.""
— West Riggs, head of equity capital markets at Truist Securities
Clean because companies don't have to jump through all the hoops related to marketing an IPO. The fact that a reverse merger can happen without additional funds being raised, means it is also less susceptible to market conditions and investor appetite. That is particularly important for biotechnology companies as they typically have a long journey of clinical trials before they become income-generating businesses.
Biotech companies are often on the other side of the reverse merger as well, after their failure to develop a new drug or treatment sends their shares slumping, making them attractive acquisition targets. What's more, many have money left in the bank from unused capital. Capital IQ estimates around 130 such firms among listed biotech's that could be prime targets for reverse mergers.
""You've got a company, in the case of life sciences usually, that's sitting on a pile of money and its clinical pipeline went away. They would like to monetize the fact that they're public.""
— Anna Pinedo, partner and co-leader of Mayer Brown LLP's global capital markets practice
Public listing status was worth up to $25 million in past reverse mergers, according to Chris Barnstable-Brown, a corporate partner with law firm Wilmer Cutler Pickering Hale and Dorr LLP.
There have been a few such deals already this year. Korro Bio Inc. merged with Nasdaq-listed Frequency Therapeutics Inc. in July after Frequency, with $55 million in unutilized net cash, said its hearing loss treatment program failed to achieve efficacy. Nasdaq-listed Talaris Therapeutics Inc. agreed to merge with Tourmaline Bio, after the death of a patient prompted the company to discontinue two clinical trials. Talaris reported cash and cash equivalents of $181.3 million as of the end of 2022.
""In lieu of an active IPO market, it is an opportunity for a private company to go public through a reverse merger and also secure institutional capital through a PIPE financing.""
— David Stadinski, global co-head of equity capital markets at Piper Sandler