For the right companies, merging into a public shell comes with several advantages. This includes affording a private company to go public while lowering the costs and diluting fewer of its stock than it would have done with an IPO that lacks a shell. A reserve merger assists the building of the IPO process via two ways. Foremost, there is a merger of the company into a shell, and afterward, the company goes public.
In addition, based on the reverse merger, market conditions has less influence on success, and people are managing the private and public companies have more influences on success. Unlike a straight IPO, the process of the reverse merger is quicker. A period of about 30 days to 120 days is required for a reserve merger based on the status of the public shell.
It takes a minimum of a year for the completion of a standard IPO with a substantial amount of time of the management expended. Without a doubt, it costs more since the management spends less time on operating the company while dedicating time to the IPO.
There are several new financing options that come with reverse merging into a public company, and they are:
- Issuance of stock via an extra secondary offering
- Offering warrants through which stockholders are allowed to buy extra shares at preplanned price
- Increment of company stock’s liquidity
- Increase in company valuation due to increase in the share prices
- Growth of the company through acquisition of other companies through stock
- Attracting and retaining worthy employees through the aid of stock incentive plans
- General and improved access to several types of capital markets