REVERSE MERGER

Presented by:
KUNAL
16
TEJAS
 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
 Step One
 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 Two

 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 Three

 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.
The Process
Reverse Triangular Merger
KEY 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