Perhaps the best use of a reverse merger was made by LCA-Vision
Inc. The company's founder, Stephen N. Joffe, already had a
profitable hospital-based management business. But he saw an
opportunity in freestanding centers offering laser refractive eye
surgery, a procedure that corrects nearsightedness. The process for
the surgery was awaiting FDA approval, so the company laid plans
for financing the rollout of centers in the United States and
bought part of a laser surgery center in Toronto, where the process
was already legal.
Considering financing alternatives, Joffe believed he could
cobble together an IPO, but he concluded it was highly unlikely for
a new and untested concept. He didn't think there would be much
problem convincing an underwriter of the business's potential,
but could an underwriter convince other investors? What if FDA
approval was delayed?
Next Joffe considered a reverse merger. For this type of
arrangement, he only had to convince the controlling shareholder of
a public shell that the reward was worth the risk. And the
controlling shareholder of a shell company Joffe was talking with
happened to agree.
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In the resulting deal, Joffe bought stock in the shell company
in exchange for LCA-Vision's assets. At the end of the day,
Joffe had a majority position in the shell company, and the shell
company had the operating assets of his company.
Two months after the deal, the FDA approved the laser procedure
used by LCA-Vision, and Joffe was off and running. Almost
immediately, he raised nearly $500,000 privately. He also used his
publicly traded common stock to buy the remaining interest in the
Toronto facility. The private capital he'd raised, combined
with favorable lease terms on surgical laser equipment, helped
Joffe roll out seven new surgery centers in the South and Midwest.
After a brief honeymoon on Bulletin Board, LCA-Vision moved up to
Nasdaq's SmallCap market.
In a climaxing deal, LCA-Vision used its stock to purchase a
chain of refractive surgery centers from another company. To
acquire the company, LCA-Vision issued several million of its own
shares and in return got the other company's 19 wholly owned
and operated refractive surgery centers around the country. As a
final bonus, the company that LCA-Vision bought had $10 million in
the bank when the deal was inked.
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