A reverse takeover or reverse merger takeover (reverse IPO) is the acquisition of a public company by a private company so that the private company can forgo the lengthy and complex process of going public through the normal registration process. The transaction typically requires reorganization of capitalization of the acquiring company.
In a reverse takeover the shareholders of the private company purchase control of the public shell company 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. In this type transaction the private company shareholders receive a substantial majority of the shares of the public company. They also take control of its board of directors. The transaction can be accomplished within weeks.
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 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.
In the U.S., if the shell is a SEC-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 Securities and Exchange Commission for reporting issuers. The disclosure is filed on Form 8-K and is filed immediately upon completion of the reverse merger transaction.
We understand the majority of business owners are not familiar with the procedures and requirements to access capital funding using reverse merger takeovers, yet in order to complete the process they must get involved in critical decisions and negotiations in an arena that is very new and unfamiliar to them. We at Vantage Advisors realize this can easily create a very stressful situation for many entrepreneurs. For this reason we have simplified and streamed lined the reverse merger funding process in such a way to educate business owners while instilling a sense of comfort and control from start to finish.