Reverse CompanyInverted society
So why should reverse merger be considered? There are several different types of reverse merger. Especially in the USA they are used by privately owned enterprises to raise money on the open commercial sector. Through the acquisition of a joint-stock company with only nominally operated business and property - a shell company - a privately held company can gain entry to the financial community without the long and costly procedure of an Initial Public Offering transaction (IPO).
In 2007, Eddie Stobart Logistic was listed in a reverse transaction with Westbury Properties Fund, a logistic and real estate company. An inverse combination may allow a company to move its registered seat. By 2015, the US pharmaceuticals group Pfizer was planning to move its headquarter to Ireland and reduce corporate income taxes - in a reverse merger with the Dublin company Allergan.
Formenta, a UK company, was acquired in January by its US affiliate Newco Immobiliare in a reverse cross-border transaction - an EU machinery that is likely to continue to be used when the UK heads for Brexit. An inverse fusion can also help a company with reputation problems. Downtown University has shown the advantages of reverse markets.
You can lend the acquiring company's stock a higher value and greater cash. It will then be much simpler for the unquoted company to use share-based incentives and make further purchases of quoted stocks. Compared to an initial public offering, there may be less watering down of existing shareholders' stock and it may be simpler to meet the requirements for admission.
Buyers may be more willing to assist a reverse mergers than an initial public offering, especially in a declining stock exchange, and an already quoted company will typically attract more attention from industry analysts. However, the company's performance is not as good as that of an initial public offering. There is a higher degree of exposure to the potential liability of a publicly traded company than an initial public offering and this underlines the importance of due care.
A further concern is the possible need for a lock-up arrangement with significant stockholders of the publicly traded company who may wish to opt out to discourage them from divesting their stock for a subsequent post-closing time. Although the path to open market seems faster and simpler than going public, reverse mergers still pose barriers to regulation.
As is currently the case with the DX, it is likely that trade in the quoted company's stock will be discontinued. In addition, the deal on the AIM requires the consent of the stockholders of the listed company and the disclosure of an authorisation statement (similar to a prospectus), as the expanded entity will be considered as a new AIM notifier.
The consent of the stockholders is also necessary for a renunciation of the obligatory offer regulations of the Acquisition Act if the stockholders of the Company purchase stock that contains 30 percent or more of the votes of the publicly traded company. In this case, the extended entity must satisfy itself that the criteria for a publicly traded company will continue to be met after it has been completed.
However, reverse merger remains an attractive choice for firms wishing to reinforce their positions and attracting investments.