Question

What are the primary disadvantages and advantages of a reverse merger strategy?

What are the primary differences between a forward and a reverse triangular merger? Give some examples.

(From Mergers, Acquisitions, and Other Restructuring Activities Solutions Manual)

Answer 1

As per policy, only one question is allowed to answer at a time, so answering Q1 here :

Q1)

Advantages of a Reverse Merger :

1)The IPO under adverse market conditions may be a risky proposition, so Reverse mergers are very cheaper and less risky and can often be finished within weeks time.

2)Reverse mergers are often a good choice for small private companies that need a quick capital raising.

3)Private foreign companies can use a reverse merger with any U.S. public company as an easy way to enter the U.S. market.

4)For the tax shelter like adjusting the accumulated losses, the reverse mergers can be used .

Disadvantages of a Reverse Merger :

a. The historical problems of the merging companies could result in the downfall of the reverse merger scheme.

b. The reverse merging could be disadvantageous to shareholders as it may result in dilution of the control through issue of new shares.

c. The rapid speed of reverse merger can be a detrimental to the success of the merger.

d. The in-experience CEO of the merging companies may result in fall of merger strategy.