CandleFocus

Reverse Triangular Mergers

Candlefocus Editor

A reverse triangular merger is a type of corporate restructuring and merger. It is also known as a triangular merger, reverse merger, or three-cornered merger. In a reverse triangular merger, an acquiring company creates a subsidiary and then uses this subsidiary to purchase the target company. The target company is then merged with the subsidiary and the parent company acquires the target company, along with its liabilities and assets.

The common elements of a reverse triangular merger include: an acquiring company, a target company and a subsidiary company. The subsidiary company is the actual party which performs the purchasing of the target company and the parent company ultimately gains all the assets and liabilities of the target company. The target company is usually privately-held, while the acquiring company is usually publicly-traded.

Reverse triangular mergers provide certain advantages for buyers and sellers. For buyers, it is a tax-efficient way to acquire a target company and avoid the costs associated with an initial public offering. For sellers, reverse triangular mergers provide liquidity as well as an opportunity to get cash in exchange for the company’s stock.

The tax implications of reverse triangular mergers depend on the factors outlined in Section 368 of the Internal Revenue Code. Generally, at least 50% of the payment for the merger is in stock, cash, or a combination of both.

In conclusion, the reverse triangular merger is a corporate restructuring and merger that combines two or more companies in a way that is usually tax-efficient and mutually beneficial for both Acquirer and target companies. It is a way to gain liquidity and avoid some of the costs associated with a traditional corporate merger, making it a popular option for many businesses looking to restructure or expand.

Glossary Index