A Simplified ProcessReverse mergers enable a public company to become public minus raising capital, making if a considerably simplified process. Furthermore, conventional IPOs can take months to materialize, whereas reverse mergers take only a few weeks. Therefore, this will save management time and energy. Also, it ensures that there is sufficient time allotted to running the company.
Less Dependence on Market ConditionsUsually, the traditional IPO tend to combine both go-public and capital-raising functions. On the other hand, a reverse merger is exclusively a mechanism of converting a private company into a public entity. Besides, the process does not depend on the market conditions since the company is not into raising capital. Moreover, reverse merger acts as a conversion mechanism; hence the market conditions have a slight bearing on the offering. Additionally, the process is undertaken to realize the pros of being a public entity.
Benefits of a Public CompanyPrivate companies with $100 million to several hundred million in revenue attract the prospect of going public. Therefore, the company's securities are traded on an exchange and enjoy greater liquidity. Furthermore, the original investors gain the ability to liquidate their entity, which provides a convenient exit alternative to have the company buy back their shares. The management can also issue additional stock over secondary offerings, making the company have greater access to capital markets. Hence, management has more diplomatic channels to pursue growth that include mergers and acquisitions. Sometimes, all that private entities require to become successful is reverse merger.
Public companies have opportunities to trade at higher multiples compared to private companies. Besides, the increased liquidity means that both institutional investors and the general public have access to the company's stock, which, in turn, can drive its price. Additionally, as stewards of the acquiring company, they are eligible to use company stock as the currency to acquire target companies. Furthermore, since the public shares are more liquid, management can attract and retain employees through stock incentive plans.