Advantages of Being Public
Public companies have a higher "market
cap," because they raise money, acquire
other companies with liquid public shares and hire and retain top quality
employees with stock option incentives.
The value of a public company is higher
The market value of a public company, its
market capitalization, "market cap,"
is higher than the arms length selling price
for a private company as sold to a single
buyer. This is true even when both companies
are operating with the same profitability
in the same industry.
Cash is entering the stock market at a record
pace. Even those of modest means own stocks.
Ownership in numerous companies, diversification,
protects portfolios on the downside.
In contrast, risks are higher for a single
wealthy buyer who might purchase your entire
business, assuming you were to sell out.
The scarcity of qualified buyers willing
to take undiversified risk dictates a lower
sale price. Furthermore, selling your business
to a single buyer is uncertain, traumatic
and involves significant broker and accounting
fees.
For example, suppose Mr. A locates a single
buyer for his business promising him $3,000,000
in cash and $2,000,000 over time. Mr. A must
stay involved with the transition as an employee.
He and the buyer must work together smoothly.
What if Mr. A's former business experiences
operational problems? He could be forced
to take back what remains.
Alternately, by gong public through a reverse
merger transaction, Mr. B owns a company
similar to Mr A, in the same industry and
achieves a $20,000,000 market cap. Over two
years he pockets $5,000,000 while retaining
75% equity and full control of a new public
company! Offering options, Mr. B then hires
a professional manager.
Over time which strategy brings the greatest
personal and professional rewards? Who wouldn't
admire Mr. B's new role as Chairman of the
Board?
Capital is easier for a public company to
raise
Once you are public, the price at which your
shares presently trade gives valuable clues
about what an investment in your company
is worth. Assume your business has gone through
the reverse merger, is now trading and has
an investor communication program in place.
To structure a private placement or a secondary
offering, price your shares just below the
bid. Your investors can access your SEC reporting
via the internet. Investors have an easy
exit strategy.
Strengthen and grow your business without
borrowing
Your company can acquire competition or other
operating businesses using newly issued shares
as currency while hiring and retaining top
employees with stock options. Your market
makers M&A Department can suggest private
companies and help you with negotiations
to buy them for stock.