A reverse takeover (RTO), also known as a reverse merger, is an alternative path to the stock exchange that allows a private company to become publicly listed by acquiring or merging with an already listed company – the so-called “shell company.”
How does a reverse takeover work?
The process typically involves:
- Identifying a suitable shell company – a publicly listed entity with minimal operations.
- Negotiating the acquisition – the private company’s shareholders acquire a majority stake in the shell company.
- Injecting the business – the private company’s operations and assets are transferred to the listed entity.
- The resulting entity is publicly listed with the private company’s business.
Advantages over traditional IPO:
- Significantly faster – weeks to months vs. 6-12 months for an IPO.
- Lower cost – no underwriting fees, road shows, or extensive prospectus requirements.
- Less regulatory scrutiny at the entry stage.
- Market conditions are less relevant – no risk of IPO cancellation due to market downturn.
Risks and disadvantages:
- Shell companies may carry hidden liabilities or legal issues.
- Due diligence on the shell company is critical and often underestimated.
- Post-merger compliance obligations remain significant.
- Market perception – RTOs can carry negative connotations.
- Regulatory arbitrage concerns – regulators may scrutinize RTOs more closely.
Paweł Osiński
Attorney, expert in corporate law and capital markets