Sen. Christopher Dodd (D-CT) heads the Senate Committee trying to do the same thing. But now with the Democrats losing their filibuster-proof majority, Dodd has made clear that it is going to be more difficult to pass something now. In addition, out of the blue the Obama Administration added another demand they wanted added to the bill: a provision that would require banks not to have any proprietary trading. This would effect Goldman, Morgan Stanley and others. The other day Dodd, who is retiring in November, had unusually tough criticism for the Administration, almost begging them to back off and let him try to craft something that he thinks can get some bipartisan support.

Honestly I tend to be for as little oversight of our markets and institutions as possible, but if something is going to pass, let’s hope it includes the provision in the House bill that permanently exempts smaller public companies from auditor attestation of the adequacy of their internal financial controls under Sarbanes-Oxley Section 404(b).

Why is this? The traditional IPO market appears very sensitive to the market, and the IPO window opens and closes very dramatically. Why doesn’t this happen for reverse mergers? Why are the number of transactions relatively stable through up and down markets? It’s very simple. Because trading immediately following most reverse mergers is limited, smart entrepreneurs, investors and deal makers realize that current market conditions are mostly irrelevant. What matters, say many, is the anticipated market performance 6, 12 or even 18 months following the going public event. That is when “real” trading will hopefully develop for a company that is meeting investor expectations. In addition, since the IPO market performs even more dismally when the market is down, some companies that were pursuing IPOs turn instead to a reverse merger to complete the process of obtaining a public trading stock. This increases deal volume when the market is down.

It is true that extraordinary events such as the September 11 terrorist attacks or the near financial collapse we faced in the last 18 months do indeed affect deal volume in the IPO alternative world. But in a “normal” down market, we do not typically see a reduction in the number of completed deals.

So hang in there guys! We’ll be fine….

I’ll be following this and try to give you updates when they arise…Fingers crossed!

Until just a few months ago, prices of legacy shells had hit a low of about $200,000. This was tough for some who bought shells a few years ago for much more than that.  Also there was a glut of supply as the deal volume went down in the last year or so. For awhile in 2009 we were seeing prices of about $200-$250,000. Lately the prices have moved up to more like $300-$350,000. I even saw a deal at $430,000.

Some of this is a little unclear since every deal is different and has different components. Many shell mergers do not involve any cash, but merely a shell player looking for equity in an exciting growth company. Others take less than a market amount of cash in exchange for more equity. Others are shell principals playing other roles in deals such as investment bank and others, which somewhat muddles what cash and equity is for what. But there is no doubt “prices,” however one describes that, have moved up lately.

Even Form 10 shells’ prices have come up. At the height one could buy 100% of the stock of a Form 10 shell for $200,000. This went down to roughly $50,000 for a quality shell not created by a “shell mill.” Nowadays we are back up to the $75,000 to $100,000 range. That said, I do occassionally come across a client that created a Form 10 shell but did not find a deal and is ready to shut it down, and is therefore willing to sell for a much lower price. Those deals are few and far between, and slowly the market is ridding itself of players whose timing may not have been perfect as to when they set up their shell.

But all in all good news for shell owners.

The somewhat good news is that the fourth quarter of 2009 showed some real strength. There was a low of just nine deals in April and just 41 deals in the second quarter. In the last quarter there were 60 deals. Indeed, the RMR indicated that there have been steady increases in both the number of deals and average deal size through the year. There were fewer Chinese deals in 2009 than 2008 (45 vs. 68). But all the numbers were up in the fourth quarter.

In the meantime, the IPO market also has woken up. There were 63 IPOs in 2009, though the average IPO size was $348 million (but this was against $650 million in 2008). But considering at the height in the late 1990s there were about 400 IPOs, it appears that IPO alternatives continue to be the most available avenue for companies below $300 million in value. And 187 reverse mergers vs. 63 IPOs bodes well for the increasing popularity and utility of these techniques.

Go 2010!

His bottom line: unless the Administration does something major, we are headed for a double-dip recession pretty soon. The stimulus has done little to help because only 20% has been spent and unfortunately, in his view, the projects were based on the needs of Congresspeople, not what will create jobs. Another stimulus would be just as difficult. And consumers drive 80% of the economy but have not been spending because jobs are lost, people are underemployed or stopped looking, and if they have a little extra money they are trying to rebuild savings lost when their home and stock portfolio values dropped.

What’s his idea? Use another $700 billion to give everyone who is not in jail or permanently hospitalized a $3,000 gift card to use at any retail establishment. It must be used within some short period, and presumably the multiplier effect would kick in. It is better than giving people cash, he states, because one cannot save it or use it for a non-stimulating purpose such as paying off debt.

Unfortunately, Irwin laments that politically such an idea would never fly because it does not help anyone’s district in particular. He is a non-political guy, is not a member of any party, but said for the first time in his career he has to admit that the Administration has not been handling things in the right way. I personally worry about any more spending that will increase the debt and deficit, but if they’re going to do it anyway, the gift card idea ain’t so bad!

All this is true, and we have worked on deals where non-reporting shells are involved and they have been successful. The other side of the coin, however, is as follows. First, involvement with a shell that has not been reporting with the SEC makes the due diligence process more difficult. With reporting shells, the vast majority of our due diligence review is contained in the company’s public filings. These are supposed to contain every material event and issue the company has faced, and includes copies of important contracts and transactions as exhibits. Second, if a contemporaneous or near-term financing is planned, many PIPE and private placement investors insist on investing only in a shell that is fully reporting. Third, if a shell is not reporting it can only trade on the pink sheets. Some prefer a shell trading at least on the OTC Bulletin Board. Last, a number of players believe that trading should only occur with full disclosure of events concerning the company. If the full super 8-K is not filed, they wonder how people can trade knowledgably.

All that said, it is fully lawful to combine with a non-reporting shell, and many are actively doing so. Just make sure you have thought through the pros and cons above as it regards your particular situation.

1. To work with the SEC to try to eliminate the onerous “evergreeen” requirement which burdens all former shells forever with a requirement to stay current in their SEC filings for a shareholder to be able to use Rule 144 to sell unregistered shares.

2. To continue to educate players in finance, in particular in the private equity and venture capital worlds, as to the benefits of alternatives to traditional IPOs.

3. To keep the RM & SPAC blog as a center of discussion for our industry.

4. To always keep a very open mind as to all legitimate methods for creating and utilizing shell companies.

5. To continue to try to eliminate fraudulent efforts to bypass regulations in our industry so as to do all possible to continue to improve the perceptions of the players in the RM world.

6. To continue to provide my clients in this space with thorough, exacting work that is efficient, fast and reasonably priced, but ensuring their maximum protection in this sometimes precarious field.

To all, my faithful blogees, I thank you so much for keeping our humble site as successful as always, even in some pretty dark times in 2009! Here’s to a happy and prosperous New Year to all….

As for the economy, well, about the same number of people tell me they are sure this is going to be a nice steady and long-lasting recovery as tell me the market surge is not real and the economy is headed back down for a “second dip” recession very soon. In a few weeks I am attending an event where a leading economist, whom I’ve seen many times, will bring his 35 pages of charts (luckily in the morning rather than after a few glasses of wine at night!) to try to tell us where the economy is headed. I will try to take notes! All fellow Wharton grads of my era were reminded of the challenging science of economics with the death this week of legendary author and prognosticator Paul Samuelson. Heck, even my Mom studied him at Bryn Mawr! There is one thing for certain. The economy will do what it will do. Take that one to the bank. Something else. The economic cycle has not been broken, and I’m not aware of anyone who seriously thinks that it can be. It will go up, then down, then up again, rinse and repeat. When and how that happens, well those are the bets that make some rich and some, not so rich.

I hope all of us will take time during this season to remember what really makes us all rich (and you know I’m not talking about business gang). It’s the love and relationships in our lives, and, as I saw on a school poster recently, “Do you do the right thing…when no one is looking?” And yes, I do feel great warm feelings for so many good friends I have been fortunate to have made while we happen to do business together. To me, that is one of the greatest motivators as I bound into the office each morning ready to tackle the day. Thanks to all my friends, clients, supporters, fans of my blog, book and speeches, for the extra joy you bring to the daily adrenalin rush of building and running a business. Happy holidays everyone!!!!