reverse merger listing

Reverse Acquisition of a Public Company

Introduction

Reverse acquisition is an acquisition strategy that involves one company purchasing another company, with the latter company legally taking over, or merging with, the former company and using its publicly traded status in order to access public markets. The acquired company is often referred to as the shell or target company and serves as the vehicle for the reverse acquisition.

Reverse acquisitions are popular alternatives to traditional initial public offerings (IPOs). Such acquisitions involve a tailored, structured transaction that eliminates the long, expensive registration process of a typical IPO. Because of this, reverse acquisitions enable privately held companies to gain complete control over a public company, thus granting them access to capital markets.

In this essay, we will explore the process of a reverse acquisition of a public company. We will discuss the available options and the advantages and disadvantages of each. We will also discuss the regulatory considerations of a reverse acquisition and the due diligence necessary to ensure the transaction is successful.

Types of Reverse Acquisition

1. StockFlexTM - A StockFlexTM reverse acquisition is a tailor-made transaction which involves a private company, the acquiree, offering new shares in exchange for public shares. The public company, the target, will accept the private companys new shares and then merge with the acquiree. This type of reverse acquisition preserves the identity of the public company and, rather than dissolving the original holding company, allows the public company to become the acquiring company.

2. Mergers - In a merger-driven reverse acquisition, the public company agrees to merge with the private company, the acquiree. The public company then effectively dissolves and the acquiring private company gains control of the targets assets and liabilities. There are two types of mergers that may be used in reverse acquisitions: triangular and straight-line mergers.

3. Takeover - A takeover-driven reverse acquisition involves the acquirer, the private company, purchasing enough of the target public companys shares to gain control, then performing a tender offer for the remaining shares. Once the takeover is complete, the acquirer gains ownership of the public company and can then use its publicly traded status to access capital markets and sell more shares.

Advantages and Disadvantages

Reverse acquisitions have several advantages and disadvantages.

The main advantage of reverse acquisitions is that they are a faster and less expensive way for companies to access public capital markets, compared to traditional IPOs. Additionally, as private companies, target companies can retain certain of their tax advantages, such as access to the Small Business Investment Incentive Act, and retain the tax character of their business.

One disadvantage of reverse acquisitions is that the process can be complicated and require the expertise of a financial advisor experienced in mergers and acquisitions. Additionally, reverse acquisitions often come with a certain degree of risk, especially since the target company is often unaware of legal and financial liabilities related to the transaction.

Regulatory Considerations

When engaging in a reverse acquisition, the parties involved must be aware of the rules and regulations specific to their country. In the United States, reverse acquisitions must adhere to the Securities and Exchange Commissions (SEC) procedures and requirements, as outlined in Regulation S-X Section 3-05, the U.S. GAAP accounting standard applicable to reverse mergers.

In addition, there are several other regulations and laws that must be taken into consideration when engaging in a reverse acquisition, including the Sarbanes-Oxley Act and the Internal Revenue Code.

Due Diligence

Due diligence is essential for any reverse acquisition transaction. It is important for both the acquirer and the target to conduct a thorough investigation of the others financial and legal history, as well as its operations, customer relationships, and market position.

The target must also prepare an SEC Unsolicited Tender Offer statement and Schedule 13D filing, while the acquirer should obtain a fairness opinion to ensure the transaction is being completed at a fair value. Additionally, the acquirer should consult with qualified legal professionals and advisory firms to ensure the transaction is being completed in accordance with the relevant regulations and laws.

Conclusion

Reverse acquisitions can be a great alternative for privately-held companies wanting to access public capital markets. However, it is important for both the acquirer and the target to conduct the proper due diligence, and to be aware of the applicable laws and regulations. With the proper guidance and information, a reverse acquisition can be successful and beneficial for all parties involved.

Reverse stock takeover is a type of transaction where a company acquires its listed shares in order to gain complete or partial control of the company. This type of takeover is also known as a “self-tender offer”. It’s a powerful tool used by companies to acquire their own stocks, often with the intention of taking the company private.

To carry out the reverse stock takeover, the company will first make an offer of payment to all existing shareholders to buy back their shares at a predetermined price. Shareholders can choose to accept the offer or refuse it. Most shareholders agree to sell their shares as they are offered a decent return on investment when the company takes over their shares.

Once the shares have been purchased back, the company will either use them to acquire majority control of the company and take it private, or establish a new ownership structure where selected shareholders are in control of the company. The terms of the reverse stock takeover will depend on the company’s objectives of the takeover and the buying power of the shareholders.

Shareholders benefit from the reverse stock takeover as they are offered a competitive return on their investment, and the company gets to control the company on their own terms. This approach gives the company much more flexibility over the direction of the company, allowing them to make changes quickly and efficiently.

It’s important to note that reverse stock takeover is a complex process and requires special legal advice to carry out. Companies should ensure they have a competent lawyer to talk through the implications of the takeover and negotiate any terms as required. Furthermore, companies need to ensure that any transaction adheres to all applicable laws and regulations.

In conclusion, reverse stock takeover is a powerful tool to gain control of the company and leave shareholders with a competitive return on their investment. With proper advice and planning, the company can ensure a successful takeover that offers the best outcome for all parties involved.