Potential Costs and Benefits of the Private and Listed Company - Coursework Example

The paper "Potential Costs and Benefits of the Private and Listed Company" is a brilliant example of coursework on finance and accounting. Reverse acquisition - This refers to the technique by which a private company goes public and avoids the heavy regulations of the initial public offering (IPO). A company becomes publicly traded through obtaining a public company. There is instating of the acquired company to the management and renamed. In the long run, the reverse acquisition may cost less than the corresponding initial public offer. This necessitates independence on market conditions of the initial trading. Nevertheless, the reverse acquisition provides more liquidity to the private company when the real market expresses its interest in it (Feldman 2010, p. 9).

Many private companies go public through reverse mergers. This shortcut is a reverse acquisition or backdoor listing because the companies involved fail in getting listed on the exchange. They only acquire and merge with the company already listed on that exchange. The listing of the privately held company on the stock exchange takes place by acquiring a listed public company that is a private company. This process is too fast, offers certainty of the outcomes, and there is less dilution. The control of the new owners for the listed company is possible (Feldman 2010, p. 12).

The stringent regulation in the backdoor listing is significantly less than in the IPOs. The regulatory treatment for IPO and backdoor listing should be similar in the security market. The shares in the listed company (EFT) will increase abnormally immediately after the backdoor listing. As a result, insiders will gain through insider dealings.  Normally, going public is expensive and IPO predominantly necessitates publicity by private firms in obtaining listing status. Despite that backdoor listing is considered as a cheap alternative, the related regulatory regime lacks empirical evidence (Feldman 2010, p. 20).

Potential costs and benefits of the private and listed company

A private company (Club Telco)
There is quick transformation since conventional IPO may take over one year due to the formalities involved like paperwork review and attending meetings. This is disastrous to the growth of the market. The reverse merger technique is shorter and may take less than one month. Cost-effectiveness may result because the entire IPO process is expensive, but the reverse acquisition minimizes the excessive investment for the banking fees and the valuation is exceptionally high. This necessitates raising additional capital; reverse acquisition creates many options for raising capital. The listed public company (EFT) may issue warrants to the stakeholders. This necessitates the purchase of the additional share units (Gaughan 2010, p. 3).

Reverse acquisitions ensure that a private company (in this case Club Telco) will not spend money when going public. The company uses the currency of the publicly traded stocks. The analysis of the previous history of the Shell Company ensures security for the future income tax. Reverse acquisition protects private companies against changing market conditions. Normally, conventional IPOs take a lot of time during which market conditions can change significantly. In reverse acquisition, the process is fast, and acquisition depends on the decision by the management based on their preferences (Gaughan 2010, p. 8).

Listed Company
Gaughan (2010, p. 19) concludes that, after the acquisition, the liquidation of the assets of the listed company improves. This is because of the initial problems where the listed company has no significant assets that are to be performed before the business start-up process. This ensures smooth performance and the listed company (EFT) will act as the holding company for the private company (Club Telco). The name and management of the listed company, EFT, will also change. Read More