For large companies, there are several advantages of the traditional IPO over the reverse merger. But for small companies, especially those that are going to be listed on the OTC Bulletin Board, the reverse merger is still the preferred choice.

Large IPO’s can attract name underwriters such as Goldman Sachs and Citicorp. The underwriters have the ability to raise hundreds of millions to billions of dollars through their institutional clients. But few companies fall into this category or qualify for these underwritings.

The larger companies will also qualify for listing on a stock exchange, such as NASDAQ or the NYSE. Their stock price will trade well above the minimum $5 set forth by the stock exchanges. To support the IPO, underwriters must create a buzz about the potential of the company. If they do their job properly the IPO will be “oversubscribed” and there will be more demand for the shares than there are shares available to sell. Larger companies also have the benefit of analyst coverage and market support.

When a company chooses the reverse merger route it is because it is a micro cap company that seeks to go public but its earnings or net tangible assets do not meet the requirements of a NASDAQ listing. There is no shame in starting on the OTC Bulletin Board and eventually working your way up to a NASDAQ or AMEX listing. Micro cap companies have to turn to investor relations and public relations firms to get the exposure they need in the marketplace.

In the end, it is the company’s performance that determines the pricing of their shares and attracts the investors that they seek.

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