A global survey has highlighted that lots of private companies are now making efforts to go public in order to raise capital and reduce their debts. Due to the coronavirus pandemic, the economy has entered a state of recession and private companies are facing lots of difficulties to sustain in the business world.
And hence, it has left them with no other choice than to find ways to obtain financing outside the banking system. Another advantage of going public is that it reduces the overall cost of capital and it gives the company a solid base to negotiate interests with a bank.
Different types of ways are being used by private firms to go public and one of the three ways is through a reverse merger transaction. The other two ways available with a private firm to go public are through an initial public offering and a direct public offering. However, a private company should choose IPO if it is possible for it to avail of the service of a reputed investment firm.
Many financial experts advise that a reverse merger transaction is recommended only when there are no contingent liabilities on a public entity. In this case, a private company merges into a publicly listed company and ends up with the control of a public entity.
Post the completion of a reverse merger transaction, a private company attains the financial and contingent liabilities of the public entity. Due to the COVID-19 crisis, a lot of companies are bearing a huge loss and they are now looking for ways to go public during this tough time period.
