An increasing number of companies are using alternative techniques to go public. In 2006, the aggregate value of newly reverse-merged companies reached $12 billion. Shell due diligence is arguably the most important element in a reverse merger transaction. A "dirty" shell can mean more than just a failed deal, it can lead to financial and legal consequences down the road. Purchase this webinar archive to learn how incorporating unorthodox research methods into traditional due diligence can reduce your liability.

Due diligence is a key element in any buyer's decision to purchase a shell. If there are problems with the merger vehicle, a buyer shouldn't do the deal. The basic issue with due diligence is that the buyer can never really know what happened in the past with the shell. Thus, a buyer has to approach due diligence from a different angle when contemplating a reverse merger.

The buyer of a shell needs to be sure that the auditor is familiar with accounting and reporting for reverse merger transactions. This section takes a look at shell due diligence from the auditor's perspective and gives examples of why pre-existing liabilities of a shell may or may not carry forward to the merged company.

The first phase of seller's due diligence should focus primarily on the structure of the transaction and due diligence on the buyers. If the deal is sound, the formal aspects of the transaction can proceed. The second phase should focus on the adequacy of the agreements, SEC filings, and news and information flow.