Found this reading also.
There are just a couple of situations where it makes sense for an investor to convert their preferred stock to common. Most often this is done when it is simply financially advantageous to the investor to convert:
•In an acquisition. Depending on how the liquidation preference is structured, the investor might receive a larger payout by converting to common. This is where the difference between "participating" and "non-participating" liquidation preferences come into play. For example, if the liquidation preference is non-participating, then the maximum amount the preferred stock will receive in the merger is that liquidation preference. If the merger is a big deal though, the investor might take home a bigger payout if it just took home it's pro rata share of the merger proceeds like a common holder would and gave up the liquidation preference.
•In an IPO. When you go public, you're selling common stock. And you can't really have preferred stock outstanding when you do that. So most Companies charter's will provide that in the event of an IPO, all preferred stock automatically converts to common stock.
You also see it happen against the investors will from time to time:
•In a recapitalization. If new money is coming in and looking to restart the company with a clean(ish) cap table, then they will want to get rid of the outstanding liquidation preference to the extent possible. If management and other investors are on board, they can do a financing that forces the existing investors to either invest additional capital or have their preferred converted into common.
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