A Performance-Related Study of Reverse Mergers Using Private Investment in Private Equity (PIPE) Strategies

Charles W. DuVal, William Quilliam


A “reverse merger” (RM) has become a popular
transaction that allows a private company to take over 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 participants in 63% of all foreign RMs
since 2008. This study is the first to focus 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 analysis
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 at closing and post-merger, 3) take place
on higher level U.S. stock exchanges, 4) have a higher rate of
survival (influenced by sector) and 5) experience significantly
better short and long-term buy and hold returns.


Chinese; Reverse Merger; Reverse Takeover; PIPE

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