Reverse Merger
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Transcript of Reverse Merger
REVERSE MERGER
Presented by:KUNAL 16TEJAS 23
AGENDA
• Overview on reverse mergers
• Key factors for a successful reverse merger
• Pros & Cons
• Case – ICICI & ICICI Bank
Part 1
OVERVIEW ON REVERSE MERGERS
What is Reverse Merger?
• Reverse merger is an alternative method
for small and medium size private
companies to become public without
going through the long and complicated
process of traditional Initial Public
Offering (IPO)
(… Contd) What is Reverse Merger?
• In a reverse merger, a private
company acquires a public entity by
owning the majority shares of the
public entity (usually 90% or more)
(… Contd) What is Reverse Merger?
• At the close of merger, the private
company takes on corporate
structure of the public entity with its
own company name, assets, officers,
directors, management team and
becomes public
PART 2
Key Factor For Successful Reverse Merger
Finding a suitable shell and making sure it is “clean”
A public shell could be either a public traded reporting
company or a non-trading public reporting company (A Blank
Check Company)
A public shell usually has no operation or business activities
and has no remaining employees and management team
Shells that have no significant assets can be purchased
Step One
Seeking experienced law firm
Seeking reputable auditing firm
The investors of private company buy an overwhelming
majority of the shell shares for a nominal amount
and/or the shell shareholders vote to authorize the
issuance of a new large and highly diluted block of
shares
Step Two
The large block of shell company shares that is now
controlled by the private company investors are
swapped for the private company, thereby acquiring it.
The shell company now owns the assets and ongoing
business of the private company, including its name,
officers, directors and management team.
Step Three
The Process
Reverse Triangular MergerKEY Highlights:
The acquirer drops down a 100% subsidiary
The acquirer’s subsidiary merges with the Target
The acquirer issues shares to the shareholders in the target
Consequently, the acquirer holds 100% in the target
PART 3
PROS &
CONS
Advantages Of Being Public
Easier Access to Capital
Greater Liquidity
Growth through acquisitions & strategic alliances
Using Stock Options to retain talent
Increased shareholder confidence
Advantages: Reverse Merger v/s IPO
Lower Cost
Speedier Process
Not dependent on IPO market for success
Less dilution
Underwriters unnecessary
Disadvantages Of Being A Public Company
Emphasis on short term results
Public Disclosure of Financial Results
Increases the cost of doing business
Public Companies attract lawsuit
Criticism About Reverse Merger
Less funding
Hard to obtain market support
Insider Trading – “Bad Guy” tactics
PART 4 - CASE STUDY
ICICI LTD & ICICI BANK