Abstract: The article below highlights the feasibility of a private firm becoming a public company either by IPOs( Initial public offerings) or reverse merger. The article further states that reverse merger and IPOs are alternatives, which do not offer equal chances. Even though reverse merger seems beneficial because it saves money, makes it happen very fast and does not involve many complications, in the long run it may have to go through all the processes, which an IPO requires. IPOs on the other hand, are time consuming, expensive but the end result is quite concrete.
Reverse merger is the method by which a private company coalesces with a public company so that the private company attains the status of a public company. The public company on the other hand is devoid of any assets or liabilities. The public company occupies a favorable position because it has several shareholders. So, by becoming a public organization, a private company can enjoy the benefit of possessing a large number of shareholders and consequently shares.
There are many methods by which a private company can be converted to a public company. Reverse merger being one and the other being the IPO or initial public offer. The various opportunities offered by reverse merger and IPOs are different and depends on the requirement of the private company intending to go public.
Role of IPOs (Initial public offers) in the transition from a private company to a public company: IPOs help in raising capital by sale of shares. These shares are usually sold to the public. But the shares sold are absolutely new Company Shares. There may be times when the IPOs may include some older shares but this is seldom.
Requirement of IPOs: There are few necessities pertaining to the IPOs. They are given below:
|An IPO requires that the company has a good track record of a successful business and evidence that the method adopted by the company in raising funds was appreciable.
An underwriter is required.
So that the public customers are fooled into fraudulent acts, the sale of shares are monitored by SEC. The company is required to file in the Registration Statement.
Features of a reverse merger: Reverse mergers can make a private company public very fast. IPOs involve a lengthy process full of complexities and may be expensive too. However, IPOs, even though follows a detailed path completes the process very effectively. All private companies may not have the financial strength to become public by adopting the IPOs method. Under such circumstances, reverse merger is desirable. Even though reverse merger has the following benefits, as it is said that “there are no free lunches”, reverse merger too has its own shares of pitfalls. Benefits of Reverse merger: Reverse merger makes the whole process very less expensive, hastens the process, does not require an underwriter and is not susceptible to the changing market conditions. Drawbacks of reverse merger: The drawbacks lie in the fact that there are plenty of filings pertaining to regulations, which need to be complied with. In order to make the market attractive to the public, it has to incur quite an amount of expenditure especially when the number of shares are limited.
Last Updated on : 29th July 2013