Ease of Raising Capital: Raising capital can be easier within a public company. Among the reasons for this are liquidity, ease of trading and a demonstrable market value via the share price, as well as enhanced financial reporting.
Acquisitions: Public stock acts very much like currency, so making acquisitions can be easier being a public entity.
Staff Incentives: Attracting staff through stock options can be an advantage to a public company.
Exit Strategy: Public company shares can provide a long term exit strategy for owners.
Reduced Costs: A reverse merger can proove to be a significantly less cost intensive excercise than a traditional IPO.
Time: As the requirments for a public quotation have already been met by the shell a reverse merger is less time intensive then a traditional IPO.
Reduced Risk: IPO’s suffer from the risk that they may be withdrawn due to volatile market conditions. A reverse merger can be a more certain outcome for the private company and its owners.
Reduced Management Input: The traditional IPO is very labour intensive for management. A reverse merger, when working with the right group, can be concluded much more swiftly.
Reduced Admission Requirements: While an IPO will require a long earnings history and significant proof of concept/business, the reverse merger process has less requirements in this area.
Reduced Dilution: Although both scenarios result in dilution to the private shareholders, a reverse merger will usually afford less dilution to the owners of the private company.
Reduced Underwriter Requirements: A traditional IPO requires an underwriter to support the transactions. No such underwriter is required in a reverse merger which is especially relevant in today’s market.
Disadvantages
Less Confidentiality: Private companies are just that, private! A public company is required to report everything that could affect the company in filings and news releases.
More Reporting Expense: More reporting is required as public company and is therefore a higher cost to the company.
Ownership Dilution: Either through funding or the requirement to have shares in the market available for trading, the owners of the private company will suffer dilution.
Greater Time Spent: Being a public company requires management time in dealing with the public aspects of being a quoted entity.
Greater Liability: The greater visibility of the company and the enhanced reporting requirements lead to a higher exposure of liability.
