Reverse Mergers – Quick and Convenient

The process of becoming a company – especially a publicly traded one – can be lengthy and laborious.  While plenty of organizations go through the traditional method of making an initial public offering, many more seize on the benefits provided by reverse mergers.  It’s a quicker method that allows a company to go public while dodging a large amount of the red tape normally associated with the process, and usually for a bit less of an investment in time and money.  It has plenty of benefits and a few drawbacks but for many companies reverse mergers simply make more sense and are the better way to go public.

Speed is a major benefit of reverse mergers.  A traditional initial public offering can take more than a year to complete.  And over the course of that year, much can change.  Market conditions can dwindle, the company itself could lose traction or value, and much more.  A reverse merger takes as little as thirty days to complete, ensuring that there will be few changes in the company or in the overall landscape of the market unless major events unfold.  This speedy transition and avoidance of variables is perhaps the main reason that so many companies go public through this method.

The actual process of reverse mergers is usually cheaper on the whole as well, and there’s less overall stock dilution than there would be in a traditional IPO.  And since the process of raising capital and going public are separate from each other, there’s less money that actually needs to be raised and in many instances no additional money will be needed beyond the basic costs of completing the actual merger.  On the flipside of that, however, a company won’t receive the same large influx of cash that an IPO could bring to the table.

Reverse mergers are basically completed when a company that is private overtakes a public shell company.  These shell companies usually have little or no business operations and exist solely for business moves such as this.  The publicly traded company will, in effect, become the private one and its stocks will be linked to the once-private company.  Plenty of companies can assist in the process, and once you get the ball rolling it takes very little effort or time to complete the merger.  If you’re thinking of going public but the hassles associated with an IPO aren’t that appealing, taking a closer look at reverse mergers may be a good idea.

About Richard Wilson