Monday, February 15, 2021 10:05:03 AM
By MARSHALL HARGRAVE
Reviewed By THOMAS BROCK
Updated Oct 23, 2020
What Is a Reverse Takeover (RTO)?
A reverse takeover (RTO) is a process whereby private companies can become publicly traded companies without going through an initial public offering (IPO).
To begin, a private company buys enough shares to control a publicly-traded company. The private company's shareholder then exchanges its shares in the private company for shares in the public company. At this point, the private company has effectively become a publicly-traded company.
An RTO is also sometimes referred to as a reverse merger or a reverse IPO.
KEY TAKEAWAYS
A reverse takeover (RTO) is a process whereby private companies can become publicly traded companies without going through an initial public offering (IPO).
While reverse takeovers (RTOs) are cheaper and quicker than an IPO, there can often be weaknesses in an RTO’s management and record-keeping, among other things.
Foreign companies may use reverse takeovers (RTOs) to gain access and entry to the U.S. marketplace.
1:45
Reverse Takeover
How a Reverse Takeover (RTO) Works
By engaging in an RTO, a private company can avoid the expensive fees associated with setting up an IPO. However, the company does not acquire any additional funds through an RTO, and it must have enough funds to complete the transaction on its own.
While not a requirement of an RTO, the name of the publicly-traded company involved is often changed as part of the process. For example, the computer company Dell (DELL) completed a reverse takeover of VMware tracking stock (DVMT) in December 2018 and returned to being a publicly traded company. It also changed its name to Dell Technologies.1?
Additionally, the corporate restructuring of one—or both—of the merging companies is adjusted to accommodate the new business design. Prior to the RTO, it is not uncommon for the publicly-traded company to have had little to no recent activity, existing as more of a shell corporation. This allows the private company to shift its operations into the shell of the public entity with relative ease, all while avoiding the costs, regulatory requirements, and time constraints associated with an IPO. While a traditional IPO may require months or years to complete, an RTO may be completed in just weeks.
For a company that wants to become publicly traded, reverse takeovers (RTOs) can be a cheaper and quicker option than an IPO. However, they tend to pose greater risks for investors.
Sometimes RTOs are referred to as the "poor man’s IPO." This is because studies have shown that companies that go public through an RTO generally have lower survival rates and performance in the long-run, compared to companies that go through a traditional IPO to become a publicly traded company.
Special Considerations
Unlike conventional IPOs—which can be canceled if the equity markets are performing poorly—reverse mergers aren’t generally put on hold. Many private companies looking to complete a reverse merger have often taken a series of losses, and a percentage of the losses can be applied to future income as a tax loss carryforward.2?
On the flip side, reverse mergers can reveal weaknesses in the private company’s management experience and record keeping. As well, many reverse mergers fail; they end up not fulfilling the promised expectations when they eventually begin trading.
A foreign company may an RTO as a mechanism to gain entry into the U.S. marketplace. For example, if a business with operations based outside of the U.S. purchases enough shares to have a controlling interest in a U.S. company, it can move to merge the foreign-based business with the U.S.-based business.
Recent ASTI News
- Ascent Solar Technologies Announces Debt Pay Off for Outstanding Balances • GlobeNewswire Inc. • 06/21/2024 12:00:00 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 06/14/2024 08:30:10 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/12/2024 09:53:56 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/11/2024 11:52:53 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/11/2024 11:51:04 PM
- Form 4 - Statement of changes in beneficial ownership of securities • Edgar (US Regulatory) • 06/11/2024 11:49:56 PM
- Form PRE 14A - Other preliminary proxy statements • Edgar (US Regulatory) • 06/06/2024 08:35:04 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/30/2024 12:05:09 PM
- Form 424B5 - Prospectus [Rule 424(b)(5)] • Edgar (US Regulatory) • 05/30/2024 12:00:29 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/23/2024 09:27:23 PM
- Form 424B5 - Prospectus [Rule 424(b)(5)] • Edgar (US Regulatory) • 05/23/2024 09:26:14 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/16/2024 08:45:14 PM
- Form 424B5 - Prospectus [Rule 424(b)(5)] • Edgar (US Regulatory) • 05/16/2024 08:40:50 PM
- Ascent Solar Collaborates with University of Stuttgart IGTE for the Development and Distribution of Sustainable Power Generation Technology • GlobeNewswire Inc. • 05/16/2024 12:30:00 PM
- Ascent Solar Technologies Receives Firm Order of Thin-Film PV from Mega-Constellation Satellite Manufacturer to Power Next Generation Hardware • GlobeNewswire Inc. • 05/14/2024 12:55:00 PM
- Form 10-Q - Quarterly report [Sections 13 or 15(d)] • Edgar (US Regulatory) • 05/09/2024 08:10:49 PM
- Ascent Solar Technologies, Inc. Announces Second and Third Closings of Public Offering of Common Stock and Pre-Funded Warrants at $0.14 Per Share • GlobeNewswire Inc. • 04/18/2024 09:11:53 PM
- Momentus and Ascent Solar Technologies Partner to Bring to Market Leading-Edge Solar Arrays • Business Wire • 04/17/2024 02:00:00 PM
- Momentus and Ascent Solar Technologies Partner to Bring Leading-Edge Solar Arrays to Market • GlobeNewswire Inc. • 04/17/2024 02:00:00 PM
- Ascent Solar Technologies, Inc. Announces Initial Closing of Public Offering of Common Stock and Pre-Funded Warrants • GlobeNewswire Inc. • 04/12/2024 09:00:00 PM
- Ascent Solar Technologies, Inc. Announces Pricing of $6,000,000 Public Offering of Shares of Common Stock • GlobeNewswire Inc. • 04/10/2024 12:48:54 PM
- Ascent Solar Technologies Achieves CIGS Technology Power Generation Milestones at Production Scale with Thin Film • GlobeNewswire Inc. • 03/25/2024 02:30:00 PM
- Ascent Solar Technologies Announces Substantial Debt Reduction and Plan for Full Payoff • GlobeNewswire Inc. • 03/21/2024 01:25:00 PM
- Ascent Solar Technologies Announces Warrants Repurchase Agreements • GlobeNewswire Inc. • 03/14/2024 01:25:00 PM
- Form 8-K - Current report • Edgar (US Regulatory) • 03/11/2024 09:15:11 PM
Last Shot Hydration Drink Announced as Official Sponsor of Red River Athletic Conference • EQLB • Jun 20, 2024 2:38 PM
ATWEC Announces Major Acquisition and Lays Out Strategic Growth Plans • ATWT • Jun 20, 2024 7:09 AM
North Bay Resources Announces Composite Assays of 0.53 and 0.44 Troy Ounces per Ton Gold in Trenches B + C at Fran Gold, British Columbia • NBRI • Jun 18, 2024 9:18 AM
VAYK Assembling New Management Team for $64 Billion Domestic Market • VAYK • Jun 18, 2024 9:00 AM
Fifty 1 Labs, Inc Announces Acquisition of Drago Knives, LLC • CAFI • Jun 18, 2024 8:45 AM
Hydromer Announces Attainment of ISO 13485 Certification • HYDI • Jun 17, 2024 9:22 AM