While an IPO is primarily a method of raising capital that results in a company becoming publicly traded, a reverse merger is primarily a way for a company to become publicly traded without emphasis on capital-raising.

'A lot of companies can benefit from being public, but they don't need to raise capital or maybe it isn't a good time to raise capital,' says Halter. The private company's stock 'may have valuations that make it valuable for making acquisitions. Another reason is to obtain long-term liquidity for shareholders and to provide stock options as employee benefits.

'There are many advantages to being public and right now it is virtually impossible to do an IPO. It's a good time for reverse mergers,' he says.

The process involves finding a 'shell' -- a dormant public company that is not trading. And that's just what Halter does, typically acquiring such companies through bankruptcy proceedings.

A private company then merges with the public shell, acquiring all or a portion of its stock. The public company's name is changed, a new stock symbol is assigned, shareholders are informed about the merger, and the company's newly acquired stock begins trading.

When an IPO prices, underwriters make an educated guess at what the initial price should be. But in a reverse merger, market makers simply begin matching up interested buyers and sellers and establish a price by reacting to supply and demand in the marketplace.

'It's not uncommon for companies to do reverse mergers to advance their business plans and then come back later and do secondary capital raising,' says Halter.

The reverse merger transaction is generally less costly than an IPO because the company does not have to compile and print a lengthy prospectus and send its principals on a road show to drum up support from investors. It also doesn't have the expense of paying an underwriter a percentage of capital raised.

Odd lots First Sierra Financial of Houston has acquired two more companies in the United Kingdom after its entry into that market in July. The new acquisitions are Booker Montague of Manchester, which specializes in leases of computers, telecommunications systems and other office equipment, and Titan Finance of Sidcoup, southeast of London, which leases general business equipment. First Sierra previously acquired Suffolk Street Group.

The three UK companies had aggregate lease volumes of $35 million in 1997 and will continue operations as subsidiaries of First Sierra.

The company sees 'ongoing business potential' in the UK and plans additional growth through acquisitions there, says First Sierra President Michael Sabel.

Group Maintenance America Corp. has completed the expansion of its credit facility from $125 million to $230 million to fund future acquisitions. The lead bank for the facility is Chase Bank of Texas. The company's CFO, Darren Miller, says the successful expansion of the company's credit in difficult market conditions demonstrates the belief of the stakeholders in the company's business plan.

GMAC, a consolidator that provides mechanical and electrical services to residential and commercial customers, did a combination IPO and roll-up in November 1997. Since then it has used its credit facility and stock to acquire 34 companies generating annual revenues of $450 million.

'The pipeline of potential acquisitions remains near record levels both in terms of revenue dollars and quality of companies,' says CEO J. Patrick Millinor. 'The additional financing capacity will enable us to continue to build our national delivery network.'

The U.S. Securities & Exchange Commission has proposed new rules that would vastly streamline the way public companies report their activities to the agency, allowing some reports to be filed electronically. The changes would save companies hundreds of millions of dollars and would speed up the process of offering stock for sale, but some members of the Commission expressed concern as to whether the proposed procedures would adequately protect investors from fraud.

The rule changes would allow the largest public companies -- the top 25 percent -- to register electronically with the SEC, and the registration statements would no longer be reviewed by agency attorneys and accountants, who would instead focus on scrutinizing more significant company reports, such as their annual 10-K filings.

Companies of all sizes seeking to merge with or acquire other businesses would be subject to fewer reporting requirements and restrictions on their public statements about pending deals.

Monica Perin, Houston Business Journal finance, securities and law reporter, can be reached by e-mail at mperin@houbj.com.