What are reverse mergers? A reverse merger also referred to as a reverse IPO, is where a private company merges with a publicly traded company with the end result of the private company becoming a public company. This saves the private company the very complicated and lengthy process of becoming a public company.
Vroom Reverse Merger
Reverse mergers have been on the rise recently during the COVID-19 pandemic. One of the most recent mergers is of Vroom Inc whose share price has since gone up. This can be attributed to the shift to online used car buying as opposed to the traditional way of buying used vehicles. The current rise in online shopping accelerated by the pandemic could serve as a big boost, not only to Vroom Inc but also other companies such as Velodyne Lidar and Shift Technologies.
Velodyne Lidar Reverse Merger
Velodyne Lidar Inc, a company that specializes in the manufacture of sensors for autonomous cars is set to complete a reverse merger with Graf Industrial Corp. This will in effect place Velodyne Lidar Inc on the New York Stock Exchange giving the company a big opportunity for growth in the autonomous vehicle industry. Besides the strategic backing by investors such as Nikon, Baidu and Ford Motor Co, the company's valuation combined with Graf Industrial Corp will not only create huge opportunities for its investors but also its employees.
Shift Technologies and Insurance Acquisition Corp
Shift Technologies, a market leader in used cars online selling is also set to join the New York Stock Exchange through a reverse merger with Insurance Acquisition Corp. Online car buying is set to be on the rise with the pandemic keeping potential buyers from physical car dealerships. Buying a used car will basically shift from the traditional handshake deals to having it delivered at home. This trend whose main contributor is the ongoing pandemic crisis could rise in the near future.
The used car market is a billion dollar industry, which is headed for a major disruption by players such as Shift Technologies who also have huge investment backing from Lithia Motors and Goldman Sachs. Going public will bring about a huge capital infusion which will in turn fund the company's growth strategies and increase its range of product offerings.
Reverse mergers are not a new thing, and with the recent change of market trends especially in the automotive industry, more could come up. Online competition between Vroom Inc and Shift Technologies could also have a negative impact on their profit margins. This would mean the companies will have to focus on volumes to meet their profit targets. Limited movement due to the Covid-19 pandemic could also be a limiting factor in sales growth.
Reverse mergers more often lead to huge trading during their debuts like in the case of Vroom Inc. The same trend is expected of Shift Technologies and Velodyn Lidar Inc.
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