Reverse Merger

A Reverse Merger, also known as a reverse takeover or RTO, is a financial transaction that results in a privately-held company becoming a publicly-held company without going the traditional route of filing a prospectus and undertaking an initial public offering (IPO). Instead, the shareholders of the private company transfer all of their shares in the private company to the public (shell) company in exchange for shares of the public company.

Technically, the transaction is a takeover of the private company by the public company; however it is called a Reverse Merger because the private company obtains control of the public company by receiving a majority of the equity in the merger. The private company remains the operating entity and management of the private company assumes management of the merged entity. The public company involved is typically a "shell" company (also known as a "blank check company") meaning it has virtually no equity valuation nor any ongoing business prior to the merger. The term blank check or shell company usually applies to a company with little or no employees, little or no physical assets, whose business plan is to merge with or acquire some unidentified company or companies.

Frequently, Reverse Merger transactions involve the simultaneous raising of capital. These transactions, often referred to as Alternative Public Offerings (APOs), are becoming increasingly common and taking significant market share from the traditional IPO market.