Companies go public for many reasons. In order to take a company public, a private company can take over a year going through the IPO process. As you can imagine, a growing company would want to maximize their time and resources after incorporation. In today’s fast paced business environment, corporate managers can look at several successful reverse mergers that turn private companies into public companies. In this post, we’ll explore the main reasons that reverse mergers can be more successful than the traditional IPO route.
Lower Costs To Go Public
The costs of going public through an initial public offering (IPO) are expensive. You have to work with an investment bank that will charge you to advise on the process. Of course, also consider working with a financial accountant. Rather, you can perform a reverse merger that could potentially lower your costs. It would require lower costs than working with an investment bank for over 12 months. Additionally, it could allow your company to offer securities at higher prices down the road. In this way, a reverse merger can lower the costs to going public significantly.
Quick Access To Capital Funding
Often times, private companies in the $100 million revenue range and up want to have increased liquidity. While it could take over a year for an IPO to happen, the reverse merger can give you access to greater securities and resources in as little as 30 days. For a growing business, the access to publicly traded funds can accelerate growth and increase investment from financial professionals. Moreover, the management team can invest into the business more aggressively for the long term.
Increased Control To Go Public
Additionally, a reverse merger can give corporate managers increased control while the company goes public. Since the SEC registration process is so long, you would not want to risk your IPO getting delayed or declined. It would be a major set back to a private business if they invest in going public and can’t follow through because of regulatory concerns or market conditions. The reverse merger process give the company more control to ensure that the company goes public.
Less Reliant On Market Conditions
Reverse mergers are methods to convert your private business into a public entity. Since your business is not asking to raise capital, the entire process is less affected by market conditions. In fact, as reverse mergers are conversion mechanisms, the market has very little bearing on the offer. Instead, the process is reliant on understanding the benefits of turning your private business into a public entity. Certainly, companies are choosing reverse mergers over IPOs since they are less reliant on market conditions.
Buying Into Relevant Shell Companies
Many successful reverse mergers buy a shell company in their industry. Although the actual industry of the shell company is irrelevant, you should still do your due diligence. Similar to buying an existing business, you would not want to buy a shell company that has lawsuits or liabilities that could arise. In the past, you can find many successful reverse mergers that bought a company in their industry and then only partially changed the name. In some cases, the private company decided to keep the name of the shell company. This is a nice added benefit of using a reverse merger.
Foreign Companies Get Into US Markets
Of course, when a process like reverse mergers works successfully, many companies around the world would like to take advantage of it. International companies including China business opportunities have started to abuse this process to gain entry into US markets. However, the US regulatory entities are taking notice to ensure that fair practices are in order. If your firm is from abroad, a reverse merger could be a smart option to become a US publicly traded company.
If you would like to take a private company public, then reverse mergers might be the option for you. They come with their own risks that you need to plan for. However, they can take a company public quickly, granting access to capital and lowered costs. Moreover, the reverse merger can allow you to have increase control as you buy a relevant shell company and gain access to publicly traded markets. If you are considering reverse mergers vs IPOs, there are plenty of reasons to consider the quicker option.