Reverse Merger

In a reverse merger, a private company goes public by merging with an already listed shell company. Instead of a traditional IPO, it takes over the listed shell company. This allows it to reach the stock exchange faster and with less effort. Mechanically, the private company's shareholders contribute their shares in exchange for new shares in the listed company and thereby gain a majority in it. Economically the smaller listed entity formally acquires the larger one, which is why the process is called a reverse takeover.

The advantages are speed and predictability, since there is no bookbuilding and no dependence on an issuance window. Substantial risks stand against this. The shell can carry legacy issues such as liabilities, pending litigation or tax exposures, making careful diligence essential.

The structure also brings no fresh capital unless a capital increase runs in parallel, and the shareholder base is often unstructured, leading to low liquidity and volatile share price performance. Legally the contribution can trigger a listing procedure or a prospectus requirement, and changing the corporate purpose requires shareholder approval. A related route is a takeover by a listed shell formed specifically for that purpose, a special purpose acquisition company (SPAC). The accounting depends on whether the listed entity constitutes a business. A reverse business acquisition under IFRS 3 is possible only if it does. A pure listed shell is subject to different rules, notably IFRS 2. The contributed operating company may be the acquirer for accounting purposes.

Whatever route is chosen, the operating company needs to meet reporting, control and capital markets communication requirements. This preparation and diligence on the shell remain material cost and timing factors.

Note: This explanation is for general information only and does not constitute legal advice. The legal position depends on the individual case and may change with new legislation or case law. For a binding assessment, please consult a qualified lawyer.