Adaptive Medias Inc (fka ADTM)

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ADTM - Forward Triangular Merger: Explained


A Forward Triangular Merger,

or Indirect Merger,
is the acquisition of a company
by a subsidiary of the purchasing company.

The acquired company
is merged into this shell company,
which assumes all the target's
assets and liabilities.

Forward Triangular Mergers,
like Reverse Triangular Mergers,
in which the buyer's subsidiary
is merged into the target company,
have the advantage of protecting the buyer
from the target's liabilities.

That's because
whatever form a Triangular Merger takes,
the target company ends up
as a wholly owned subsidiary of the buyer,
unlike direct mergers.

In the US,
Forward Triangular Mergers are taxed
as if the target company sold
its assets to the subsidiary and then liquidated,

whereas a Reverse Triangular Merger is taxed
as if the target company's shareholders sold
their stock in the target company to the buyer.

Reasons for a Forward Triangular Merger

Forward Triangular Mergers
are most commonly used
when financed by a combination of cash and stock,
because mergers in which
the target's shareholders are compensated
with at least 50% in shares of the acquiring company,
are nontaxable.

They are rarely used in cash-only bids,
because it would make the merger taxable.

When it comes to non-tax issues,
Forward Triangular Mergers
are usually less favorable
than Reverse Triangular Mergers.

They can have a big impact
on the target company's licenses and contracts,
because third parties can withhold consent
to the assignment of contracts and licenses
to the acquirer,
and seek a price for providing such consent.

For a Forward Triangular Merger to be legal,
continuity of interest and business purpose
must be maintained within the acquiring company.

https://www.investopedia.com/terms/f/ftm.asp


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Reverse Mergers: Guide and Stages of Readiness


A Reverse Merger

allows a privately held company to go public
by acquiring a controlling interest in,
and merging with,
a public operating or public shell company.


In a Reverse Merger process,

the private operating company shareholders
exchange their shares of the private company
for either new or existing shares
of the public company

At the end of the transaction,
the shareholders of the private operating company
own a majority of the public company
and the private operating company
has become a wholly owned subsidiary
of the public company.

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A shell company
a publically traded company with

(1) no, or nominal operations and

(2) either no or nominal assets
or assets consisting solely of
any amount of cash and cash equivalents.


A Reverse Merger

is the most common alternative
to an initial public offering (IPO)
or direct public offering (DPO)
for a company seeking to go public.

http://www.legalandcompliance.com/reverse-mergers/

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The Cost of the Shell

In a Reverse Merger transaction,
the private operating business
must pay for the public shell company.

That payment may be in cash, equity or both.

The average cash value
of a fully reporting public entity
with no liabilities, no issues
and which is otherwise “clean”
is between $280,000 – $400,000.

http://www.legalandcompliance.com/reverse-mergers/

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