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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