Conventional IPOs are subject to risk of poor timing: if the market for a given security is "soft", the underwriter may pull the offering.
In a reverse takeover, since the deal rests solely between those controlling the public and private companies, market conditions have little bearing on the situation.
Time spent in meetings and drafting sessions related to an IPO can have a disastrous effect on the growth upon which the offering is predicated, and may even nullify it.
[citation needed] One way the acquiring or surviving company can safeguard against the "dump" after the takeover is consummated is by requiring a lockup on the shares owned by the group from which they are purchasing the public shell.
Other shareholders that have held stock as investors in the company being acquired pose no threat in a dump scenario because the number of shares they hold is not significant.
[1][7] The 2017 documentary film The China Hustle lays out a series of fraudulent reverse mergers between private Chinese companies and U.S. publicly traded firms, with the acquiring companies often operating as a front for non-existent business activity and defrauding US investors in the process.
A large part of these scams was played through small US banks willing to ignore clear warning signs when promoting these newly merged companies to the public market.
In addition, reverse merger transactions only introduce liquidity to a previously private stock if there is bona fide public interest in the company.