DOI: 10.5176/2251-1997_AF16.45

Authors: Charles W. DuVal and Will Quilliam


A “reverse merger” (RM) has become a popular transaction that allows a private firm to takeover a publicly traded firm and obtain their exchange listing. RMs have significantly outnumbered IPOs as a mechanism for going public in the U.S. since 2002. Moreover, foreign firms entering the U.S. have accounted for over 40% of RMs taking place on U.S. exchanges from 2008 - 2013, as compared to approximately 10% of all cross listings and 7% of all IPOs during the same period. Chinese firms have been involved in 63% of all foreign RMs since 2008. This is the first study that focuses on foreign and domestic RM’s use of PIPEs (Private Investment in Public Equity). When compared to RMs transacted between two U.S. firms, this study finds Chinese firms who engage in RMs through the use of PIPES (traditional and structured), on average, 1) raise over 400% more initial investment, 2) experience higher post-merger market capitalization valuations, 3) take place on higher level U.S. stock exchanges, 4) have a higher rate of survival and 5) experience significantly better short and long-term buy and hold returns.

Keywords: PIPE; Reverse Merger; Private Equity

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