Reverse Merger
Reverse
Merger
A
reverse merger is a merger in which a private company becomes a
public company by acquiring it. It saves a private company from the complicated
process and expensive compliance of becoming a public company. Instead, it
acquires a public company as an investment and converts itself into a public
company.
Advantages of Reverse Merger
- The
private company becomes a public company at a lesser cost and gets listed
on the exchange without IPO.
- This
type of merger does not create a negative impact on the competition in the
market. The chances of reverse mergers being
put on hold due to negative impact are very less.
- It
helps in saving of taxes of private companies.
Disadvantages of Reverse Merger
- Lawsuits for various
reasons are very common during the reverse
- Often the promises
made during reverse merger do not come true that leads to almost no increase in
value for the shareholders.
- It leads to reverse
stock splits. This further leads to a reduction in the number of shares held by
the shareholders.
- It leads to
inefficiency in operations as the private company’s managers do not have the
expertise to run a public company.
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