Undergoing the conventional IPO process does not guarantee that the company will ultimately finish the process.Managers can spend hundreds of hours planning for a traditional IPO, however, if market conditions become unfavorable to the proposed offering, all of those hours will have become a wasted effort. As mentioned earlier, the traditional IPO combines both the go-public and capital raising functions.To consummate the deal, the private company trades shares with the public shell in exchange for the shell's stock, transforming the acquirer into a public company.Reverse mergers allow a private company to become public without raising capital, which considerably simplifies the process.As the reverse merger is solely a mechanism to convert a private company into a public entity, the process is less dependent on market conditions (because the company is not proposing to raise capital).
A reverse merger (also known as a reverse takeover or reverse IPO) is a way for private companies to go public, typically through a simpler, shorter, and less expensive process.
A conventional initial public offering (IPO) is more complicated and expensive, as private companies hire an investment bank to underwrite and issue shares of the soon-to-be public company.
Aside from filing the regulatory paperwork - and helping authorities review the deal - the bank also helps to establish interest in the stock and provide advice on appropriate initial pricing.
The traditional IPO necessarily combines the go-public process with the capital raising function.
While conventional IPOs can take months (even over a calendar year) to materialize, reverse mergers can take only a few weeks to complete (in some cases, in as little as 30 days).
This saves management a lot of time and energy, ensuring that there is sufficient time devoted to running the company.