The term reverse merger refers to an alternative strategy by which a private company seeks and acquires public listing and becomes a publicly traded company. In a reverse merger, a private company merges with a public company and continues as the dominant successor entity. Optimally, the public entity has no assets, liabilities or operations prior to, or concurrent with the merger. Public companies actively seeking such mergers are sometimes referred to as blank check companies or public shells, given the fact that ideally only their corporate structures and status as publicly listed entities and fully reporting issuers are the dominant features of interest in such a merger. By merging into a shell, a private company becomes public in an expeditious and cost-effective manner.

The private company merges into a public company and obtains the majority of its stock (generally ranging from 80-95%) Once the merger is consummated, the post-merger, combined entity changes its name to that of the private company, appointing and electing key officers and directors and the discretion of the private company.

The advantages of public trading status notably include the possibility of a greater likelihood of capital formation. Relative to a private enterprise, a public company is potentially more successful in attracting potential investors and investment banking firms for the purposes of raising additional funds. Going public through a reverse merger allows a private company to go public rather relatively quickly, at a substantially lesser cost and with less resultant dilution than traditional initial public offering (IPO) or direct public offering (DPO) strategies. While the process of going public securing fully reporting status and raising capital is combined in an IPO, in a reverse merger these two functions are unbundled; secures public listing first then seeks additional capital formation Via this unbundling operation, the process of going public is significantly simplified. The advantages of public listing or going public include:

• Increased liquidity of the ownership shares of the company
• Higher share price and thus higher company valuation
• Greater access to the capital markets through the possibility of a future stock offering
• The ability of the company to make acquisitions of other companies using the company's stock
• The ability to use stock incentive plans to attract and retain key employees
• Going public can be part of a retirement strategy for business owners.

The benefits of going public through a reverse merger, as opposed to the traditional IPO process, include the following:

• The costs are significantly less than the costs required for an initial public offering
• The time frame requisite to securing public listing is considerably less than that for an IPO
• Additional risk is involved in an IPO in that the IPO may be withdrawn due to an unstable market condition even after most of the up-front-costs have been expended
• Traditional IPOs generally require greater attention from senior management
• While an IPO requires a relatively long and stable earnings history, the lack of an earnings history does not normally keep a privately-held company from completing a reverse merger
• There is less dilution of ownership control
• No underwriter is needed: (a significant factor to consider given the difficulty companies face in attracting an investment banking firm to commit to an offering)
• Typically publicly traded companies enjoy substantially higher valuations