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anxious to sell their stock. One way the acquiring or surviving company can safeguard against the "dump" after the takeover is consummated is by requiring a lockup on the shares owned by the group from which they are purchasing the public shell. Other shareholders that have held stock as investors in the company being acquired pose no threat in a dump scenario because the number of shares they hold is not significant.
382:-registered company, the private company does not go through an expensive and time-consuming review with state and federal regulators because this process was completed beforehand with the public company. However, a comprehensive disclosure document containing audited financial statements and significant legal disclosures is required by the
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an IPO can have a disastrous effect on the growth upon which the offering is predicated, and may even nullify it. In addition, during the many months it takes to put an IPO together, market conditions can deteriorate, making the completion of an IPO unfavorable. By contrast, a reverse takeover can be completed in as little as thirty days.
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company. The private company's shareholders pay for the shell company by contributing their shares in the private company to the shell company that they now control. This share exchange and change of control completes the reverse takeover, transforming the formerly privately held company into a publicly held company. Depending on the
469:
lays out a series of fraudulent reverse mergers between private
Chinese companies and U.S. publicly traded firms, with the acquiring companies often operating as a front for non-existent business activity and defrauding US investors in the process. A large part of these scams was played through small
428:
The process for a conventional IPO can last for a year or more. When a company transitions from an entrepreneurial venture to a public company fit for outside ownership, how time is spent by strategic managers can be beneficial or detrimental. Time spent in meetings and drafting sessions related to
449:
Reverse takeovers always come with some history and some shareholders. Sometimes this history can be bad and manifest itself in the form of currently sloppy records, pending lawsuits and other unforeseen liabilities. Additionally, these shell companies could have existing shareholders who could be
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Reverse mergers may have other drawbacks. Private-company CEOs may be naïve and inexperienced in the world of publicly traded companies unless they have past experience as an officer or director of a public company. In addition, reverse merger transactions only introduce liquidity to a previously
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conditions. Conventional IPOs are subject to risk of poor timing: if the market for a given security is "soft", the underwriter may pull the offering. If a company in registration participates in an industry that's making unfavorable headlines, investors may shy away from the deal. In a reverse
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so that the private company can bypass the lengthy and complex process of going public. Sometimes, conversely, the public company is bought by the private company through an asset swap and share issue. The transaction typically requires reorganization of capitalization of the acquiring company.
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The transaction involves the private and shell company exchanging information on each other, negotiating the merger terms, and signing a share exchange agreement. At the closing, the shell company issues a substantial majority of its shares and board control to the shareholders of the private
362:
and then merge it with the private company. The publicly traded corporation is called a "shell" since all that exists of the original company is its organizational structure. The private company shareholders receive a substantial majority of the shares of the public company and control of its
407:(IPO). While the process of going public and raising capital is combined in an IPO, in a reverse takeover, these two functions are separate. In a reverse takeover, a company can go public without raising additional capital. Separating these two functions greatly simplifies the process.
492:(whose sole asset was a tax loss carryover), in what amounted to a reverse "hostile" takeover, was forced by dissident shareholders to acquire a small publicly traded company, Nuclear Consultants. Eventually this company became the modern-day
375:' agreements and other forward purchase agreements, the size of the company taken public in a reverse merger can exceed the market capitalization of the shell company/SPAC by a considerable amount.
436:
found that: "Chinese reverse mergers performed much better than their reputation" and had performed better than other similar sized publicly traded companies in the same industrial sector.
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private stock if there is bona fide public interest in the company. A comprehensive investor relations and investor marketing program may be an indirect cost of a reverse merger.
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953:
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takeover, since the deal rests solely between those controlling the public and private companies, market conditions have little bearing on the situation.
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issued an investor bulletin cautioning investors about investing in reverse mergers, stating that they may be prone to fraud and other abuses.
87:
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545:. This deal was unique because unlike many examples listed in this section, US Airways creditors (not shareholders) were left with control.
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for reporting issuers. The disclosure is filed on Form 8-K and is filed immediately upon completion of the reverse merger transaction.
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division, taking the former company's name and with Sprint holding a controlling stake, leaving the resulting company publicly traded.
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and after the merger was completed changed the company name to T-Mobile US and began trading on the New York Stock
Exchange as TMUS.
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Going public through a reverse takeover allows a privately held company to become publicly held at a lesser cost, and with less
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in 1989, the former owners (the Van der Vorm family) put the proceeds in an investment company (HAL Investments), using the
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US banks willing to ignore clear warning signs when promoting these newly merged companies to the public market.
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allowing transport by ship, road, rail, or boat to and within the UK, using only one company.
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In a reverse takeover, shareholders of the private company purchase control of the public
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837:"Charles Lee: Chinese Reverse Mergers Performed Better Than Their Reputation Suggested"
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972:"Electric car maker Fisker to go public through SPAC deal at $ 2.9 billion valuation"
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announced plans to go public via a merger with
Spartan Acquisition Corp (SPAQ), a "
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855:"'Reverse-Merger' Stocks May Be Prone to Fraud, Abuse, SEC Says in Warning"
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735:"Alibaba-backed courier YTO Express to list via $ 2.7 billion reverse..."
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506:, with the goal of shedding the tarnished reputation of the former.
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722:. U.S. SEC Office of Investor Education and Advocacy. June 2011.
812:"Bill Ackman's Pershing Square Files for Largest-Ever SPAC IPO"
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deal primarily with the United States and do not represent a
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584:, with the goal of spinning the former off from its parent,
570:, with the goal of spinning the former off from its parent,
954:"Dell Technologies Announces Completion of VMware Spin-off"
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which was called T-Mobile USA, Inc. at the time acquired
896:
786:
Reverse
Mergers: Taking a Company Public Without an IPO
415:
In addition, a reverse takeover is less susceptible to
367:. The transaction can be accomplished within weeks.
27:
Acquisition of a public company by a private company
226:. Unsourced material may be challenged and removed.
598:in order to take the larger lingerie maker public.
594:parent FOH Holdings was acquired by apparel maker
410:
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937:Frederick's of Hollywood goes public with merger
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711:
709:
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899:"Atari Agrees To Merge With Disk-Drive Maker"
706:
552:was acquired by Archipelago Holdings to form
84:The examples and perspective in this article
897:Bloomberg Business NEws (14 February 1996),
541:, with the goal of removing the former from
64:Learn how and when to remove these messages
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1626:
1042:
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378:In the United States, if the shell is an
304:Learn how and when to remove this message
286:Learn how and when to remove this message
184:Learn how and when to remove this message
122:Learn how and when to remove this message
556:, with the goal of taking the former, a
147:This article includes a list of general
890:
835:Andrews, Edmund L. (14 November 2014).
782:
14:
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502:was acquired by AirWays Corp. to form
1023:
852:
647:'s former Dutch listing to go public.
1015:Stanford Graduate School of Business
1011:"Are Chinese Reverse Mergers Toxic?"
1006:Entrepreneurial Business Law Journal
873:"Reverse Mergers: The Pros and Cons"
841:Stanford Graduate School of Business
809:
717:"Investor Bulletin: Reverse Mergers"
224:adding citations to reliable sources
195:
133:
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29:
759:"Reverse Takeover (RTO) Definition"
732:
689:Private investment in public equity
458:On June 9, 2011, the United States
24:
460:Securities and Exchange Commission
384:Securities and Exchange Commission
153:it lacks sufficient corresponding
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1002:"The Truth About Reverse Mergers"
994:
45:This article has multiple issues.
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568:Citadel Broadcasting Corporation
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138:
75:
34:
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432:A 2013 study by Charles Lee of
411:Resilience to market conditions
211:needs additional citations for
53:or discuss these issues on the
1422:Debtor-in-possession financing
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846:
843:. Retrieved 11 September 2014.
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641:Carnival Corporation & plc
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853:Gallu, Joshua (9 June 2011).
733:Goh, Brenda (22 March 2016).
699:
531:, as marriage of convenience.
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1362:Staggered board of directors
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7:
1479:Accretion/dilution analysis
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604:in a reverse takeover with
488:The corporate shell of the
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98:, discuss the issue on the
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1442:Leveraged recapitalization
1000:William K. Sjostrom, Jr.,
783:Feldman, David N. (2006).
465:The 2017 documentary film
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1613:Valuation using multiples
1598:Sum-of-the-parts analysis
1568:Modigliani–Miller theorem
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1427:Dividend recapitalization
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1242:Secondary market offering
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1662:Mergers and acquisitions
1631:List of investment banks
1546:Free cash flow to equity
1372:Super-majority amendment
1297:Management due diligence
1237:Seasoned equity offering
671:Apollo Global Management
592:Frederick's of Hollywood
473:
403:, when compared with an
337:is the acquisition of a
1342:Shareholder rights plan
1332:Post-merger integration
1302:Managerial entrenchment
1272:Contingent value rights
1212:Initial public offering
550:New York Stock Exchange
405:initial public offering
168:more precise citations.
1484:Adjusted present value
1347:Special-purpose entity
1185:Direct public offering
1155:At-the-market offering
606:Westbury Property Fund
1499:Conglomerate discount
1013:, Prof. Charles Lee,
543:Chapter 11 bankruptcy
539:America West Airlines
490:REO Motor Car Company
1521:Economic value added
1516:Discounted cash flow
943:. December 19, 2006.
810:Jasinski, Nicholas.
669:" company backed by
637:Holland America Line
220:improve this article
104:create a new article
96:improve this article
1106:Senior secured debt
789:. Bloomberg Press.
434:Stanford University
1641:Outline of finance
1553:Market value added
1536:Financial modeling
1494:Business valuation
1417:Debt restructuring
1195:Follow-on offering
1180:Corporate spin-off
1138:(terms/conditions)
1055:investment banking
960:. 1 November 2021.
921:has generic name (
639:(HAL) was sold to
518:Aérospatiale-Matra
365:board of directors
235:"Reverse takeover"
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1573:Net present value
1558:Minority interest
1489:Associate company
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1432:Financial sponsor
1352:Special situation
1322:Pre-emption right
1312:Minority discount
1222:Private placement
1121:Subordinated debt
1076:Exchangeable debt
1063:Capital structure
1051:Corporate finance
958:Dell Technologies
796:978-1-57660-231-7
684:Capital formation
523:The game company
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1526:Enterprise value
1509:Weighted average
1437:Leveraged buyout
1292:Drag-along right
1190:Equity carve-out
1147:Equity offerings
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1111:Shareholder loan
1096:Second lien debt
1091:Preferred equity
1071:Convertible debt
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467:The China Hustle
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1583:Real options
1399:Tender offer
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1259:acquisitions
1247:Underwriting
1232:Rights issue
1135:Transactions
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877:Investopedia
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218:Please help
213:verification
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1357:Squeeze-out
1327:Proxy fight
1257:Mergers and
1170:Bought deal
1101:Senior debt
919:|last=
905:, p. 1
882:10 November
768:10 November
667:blank-check
663:Fisker, Inc
645:cruise line
626:T-Mobile US
395:Flexibility
166:introducing
1603:Tax shield
1563:Mismarking
1367:Stock swap
1317:Pitch book
1287:Divestment
1165:Bookrunner
1086:Pari passu
700:References
596:Movie Star
554:NYSE Group
535:US Airways
529:JT Storage
454:Fraud risk
424:Expediency
246:newspapers
149:references
50:improve it
1578:Pure play
1471:Valuation
1337:Sell side
1200:Greenshoe
859:Bloomberg
635:When the
614:acquired
612:Clearwire
578:CBS Radio
564:ABC Radio
560:, public.
440:Drawbacks
112:July 2023
100:talk page
56:talk page
1656:Category
1409:Leverage
1387:Takeover
1282:Demerger
1267:Buy side
911:citation
821:8 August
678:See also
630:MetroPCS
582:Entercom
516:to form
483:Examples
390:Benefits
332:reverse
94:You may
1392:Reverse
1377:Synergy
1217:Pre-IPO
1205:Reverse
1126:Warrant
982:14 July
976:Reuters
941:Reuters
743:9 April
738:Reuters
445:Baggage
350:Process
260:scholar
162:improve
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652:VMWare
616:Sprint
572:Disney
417:market
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151:, but
1116:Stock
720:(PDF)
650:When
525:Atari
514:Matra
494:Nucor
474:Other
341:by a
330:, or
267:JSTOR
253:books
102:, or
1053:and
984:2020
923:help
884:2015
823:2020
791:ISBN
770:2015
745:2018
656:Dell
620:Xohm
548:The
360:SPAC
239:news
939:."
618:'s
380:SEC
334:IPO
326:),
324:RTO
222:by
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