When a company decides to go public they have an option to have a private company take over the public company also known as a shell company by exchanging information and merger terms, allowing for two companies to combine assets and share in the profits of IPO stock.

Reverse takeovers or RTO's is popular because a private company can take the stock from the merger and finance acquisitions as well as retain more investors. So this method is an alternative to the traditional initial public offerings to raise capital.

How the reverse merger transaction works

When a privately held company takes over the public stock listings and management of the business, they can use the stock for products that the share holders benefit as the comany starts to make money. When it comes to gaining capital and getting listed on the U.S. Stock exchange a new investment strategy is needed for privately held companies which can include getting a fund management company to connect them to the right investment bankers.

While many charge a fee based service, some instead will retain equity in the public shell after the transaction for long term performance of the stock of the APO process so as to aid capital raising and build liquidity.

What is reverse triangular merger?

It starts with the acquisition when the company acquires the public companies assets it also gains the shareholders and the firms stocks, allowing the aquirer to utilize the equity of the target firm. The benefit to the stockholders is that they gain securities. According to securities law institute: They state that in a reverse triangular merger, the merger proceeds with the subsidiary being merged into the target corporation and the outstanding shares of stock of the subsidiary are now owned by the acquiring corporation and then are converted into shares of stock of the target corporation.

Then it is mentioned that the shares of stock of the target corporation are converted into securities of the acquiring corporation, with the advantage being that the target corporation will become a wholly-owned subsidiary of the acquiring corporation without any change in its corporate existence.

Utilizing a reverse merger public shell as an alternative to going public companies can go public by merging with a publicly listed company which has no assets or liabilities, the corporate shell structure is still there but is at a higher valuation without the need of an underwriter. If you do decide to go this route you will want to use companies that offer investment banking services because they have proprietary public shells for reverse merger solutions for those who want to take their company public and do not want to pay the high cost of a traditional IPO.