Reverse Takeover (RTO)


A Reverse Takeover or RTO is a type of merger engaged by private companies to become publicly traded by not resorting to Initial Public Offering (IPO). The transaction requires reorganization of capitalization of the company being acquired. At times, the private company is bought is by public listed company via asset swap and issuing shares.
Shareholders of the private company purchases control of the public shell company in reverse takeover and then merges it with that of private company. Here, shell is referred to a publicly traded corporation as all that exists for the original company is the organizational structure. The shareholders of the private company receives a substantial share majority of the public company and a control over its board of directors. This transaction can be completed in a few weeks and it involves the private and shell company exchanging data about each other, negotiating the terms for merger and signing an agreement for share exchange.
The advantages of going public through RTO allows a private company to become publicly held at a lower cost and with stock dilution than through IPO. The process of going public and raising capital is combined in IPO whereas it is two separate functions in reverse takeover.


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