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.
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