Reverse Takeover (RTO)
Candlefocus EditorRTOs save companies time and money by eliminating a great variety of financial and operational hurdles associated with an IPO. Such hurdles might include a comprehensive audit and the establishment of a robust public reporting system. It also eliminates lengthy waiting periods, as the company is listed on the stock exchange almost immediately.
The primary benefit of a RTO is financial. It allows the private company to use the public company shell as a means of access to capital markets and facilitates easier access to acquisition financing and market liquidity.
But there can also be risks associated with RTOs. It is critical to ensure the quality and integrity of the management team, earning track record and financial controls, as there can often be weaknesses in the accounting and record-keeping systems of the RTO. They also lack the due diligence associated with IPOs. Foreign companies often use RTOs to gain access and entry to the U.S. marketplace.
For these reasons, companies considering a RTO must carefully balance the potential advantages with the risks to ensure the best outcome. Adequate legal, financial and operational due diligence should be undertaken to protect the interests of the company and its stakeholders.
Ultimately, a RTO allows a company to quickly become publicly traded without the time, cost,and complexity of an IPO. For companies seeking access to public financing but hoping to avoid expensive underwriting fees and other costs associated with an IPO, RTOs can be a viable choice. However, it is important to ensure that the RTO is carefully executed so that all parties’ interests are protected.