Reverse merger acquisition and fund raising can be done by various means. There is a common notion that mergers increase the efficiency of the newly formed company. The merging companies have in them the efficient qualities of both the firms. There are several minute details, which require attention. The differences in becoming a public company by a process other than reverse merger is also taken into account. There are few limiting factors pertaining to initial public offerings, which allow reverse merger to have an edge over the former.
By assuming a “public trading status”, there always lies a possibility that securities belonging to a company may be commanded at a higher price sometime in the later offerings. Getting a public company status either by the process of a public spin off or a reverse merger, offers a private company the provision to get transformed into public firm at a comparatively lesser cost and less dilution of stocks as compared to an IPO. Blind pool: In case of an IPO, going public as well as capital raising is clubbed into one. In case of reverse mergers, the two processes are not defined properly. Moreover, in case of reverse merger, which can also be referred as “blind pool” merger, requisition for additional capital is not made.
Some of the benefits which the securities of the public company offer on reverse merger acquisition and fund raising:
In case of IPO, the history of earnings recorded has to be very stable but no such requirement is needed in case of reverse merger.
Ownership shares enjoy liquidity at an increased level.
Company valuation is directly proportional to price of shares. Higher the share prices, higher is the company valuations.
Other companies can be acquired by manifesting the stocks belonging to the company. The capacity of acquisition increases.
By selling treasury stock, capital in small amounts may be raised.
Last Updated on : 29th July 2013