What is a Reverse Takeover? Meaning.
A Reverse Takeover or Reverse Merger is a strategic finance
process whereby a privately-held company conducts a private placement of its
common stock and then immediately combines with an existing public company
in a transaction where the shareholders of the privately-held company exchange
their private company shares for newly issued stock of the public company.
The privately-held company becomes a publicly-held company without going the
traditional route of filing a prospectus and undertaking an initial public
offering (IPO). Rather, the shareholders of the private company sell all of
their shares in the private company to the public company in exchange for
shares of the public company.
While the transaction is technically a takeover of the private
company by the public company, it is called a reverse takeover because typically
the public company involved is only a "shell". It typically issues such a
large number of shares to acquire the private company that the former shareholders
of the private company end up controlling the public company.
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