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What is reverse takeover in Singapore

What is reverse takeover in Singapore

In Singapore, a reverse takeover, also known as a backdoor listing, is a way for a private company to become publicly traded on the Singapore Exchange (SGX) without going through an Initial Public Offering (IPO) process.

Here's how it works:

  • A private company merges with an already public company. This public company is typically a shell corporation, meaning it has little to no ongoing business or assets.

  • The private company acquires enough shares in the public company to take control.

  • Through this process, the private company essentially takes over the public listing, allowing it to trade its shares on the SGX.

There are some advantages to reverse takeovers for private companies:

  • It's faster and cheaper than going through an IPO.

  • The private company gains access to public funding through the stock market.

However, there can also be risks associated with reverse takeovers, such as:

  • Less regulatory scrutiny compared to an IPO.

  • Potential for the public company's past financial issues to affect the newly merged entity.

The Singapore Exchange (SGX) has regulations in place for reverse takeovers. They require approval from the SGX for the transaction itself, as well as for any new shares issued by the target company.

What is a listed shell company

A listed shell company in Singapore refers to a public company traded on the Singapore Exchange (SGX) that has minimal or no ongoing business operations of its own. These companies typically have few assets and minimal revenue.

Here's a breakdown of what a listed shell company in Singapore entails:

  • Public Listing: The company's shares are traded on the SGX, making it accessible to investors.

  • Limited Operations:  They possess minimal to no ongoing business activities, generating little to no revenue.

  • Potential Uses: Shell companies can be attractive for various reasons, including:

  • Mergers & Acquisitions (M&A): They can be used to facilitate M&A deals by providing a publicly traded entity for the acquiring company.

  • Going Public for Private Firms:  Established private companies can use a shell company to gain a public listing through a reverse takeover, avoiding the complexities of an IPO.

  • Confidentiality: Some businesses might utilize shell companies for a level of privacy and confidentiality regarding their operations.

It's important to note that Singapore has regulations in place to prevent misuse of shell companies. The Accounting and Corporate Regulatory Authority (ACRA) and the Monetary Authority of Singapore (MAS) enforce these regulations to ensure transparency and combat financial crimes.

Why would a company do a reverse takeover

Companies might choose a reverse takeover (RTO) for several reasons:

  • Faster and Cheaper Path to Public Listing:  Compared to an Initial Public Offering (IPO), a reverse takeover can be a quicker and less expensive way to become a publicly traded company. The IPO process involves significant regulatory hurdles and costs associated with underwriting and marketing an IPO. An RTO bypasses these complexities.

  • Access to Public Capital: By becoming publicly traded, the company gains access to a wider pool of investors and funding sources. This can be crucial for companies with ambitious growth and expansion plans, as they can raise capital by issuing new shares on the stock market.

  • Preserving Existing Management Structure: In some cases, a reverse takeover can be a way for a private company to go public while maintaining control of its management structure. This can be appealing to founders and existing shareholders who want to retain decision-making authority. In an IPO, new investors might have a say in how the company is run.

  • Synergy with the Target Shell Company: There might be potential synergies between the private company and the target shell company. This could involve complementary business activities or access to new markets. Merging with a shell company in a relevant industry could open doors to new opportunities.

Can a private company takeover a public company

A private company can take over a public company. This process is called a reverse takeover (RTO), also known as a reverse merger or backdoor listing. In an RTO, the private company effectively acquires control of the public company, allowing the private company to become publicly traded.

Here's how it typically works:

  1. Target Identification: The private company identifies a suitable public company, often a shell company with minimal operations and a public listing on a stock exchange.

  2. Acquisition of Shares: The private company acquires a controlling stake in the public company through purchasing a majority of its shares. This can be done through various methods like open market purchases, negotiated deals with existing shareholders, or tender offers.

  3. Merger or Acquisition: The private company and the public company undergo a legal merger or the private company acquires all the assets and liabilities of the public company.

  4. Public Listing Retained:  After the transaction, the private company retains the public listing of the acquired company. This allows the private company's shares to be traded on the stock market.

There are advantages and disadvantages to consider for both the private company and investors in an RTO:

Advantages for Private Company:

  • Faster and Cheaper than IPO:  An RTO can be a quicker and less expensive way to go public compared to an Initial Public Offering (IPO).

  • Access to Public Capital:  The private company gains access to a pool of investors and funding sources on the stock market.

  • Control over Management:  The private company might be able to retain control over its management structure.

Disadvantages for Private Company:

  • Limited Scrutiny:  RTOs may have less regulatory scrutiny compared to IPOs.

  • Target Company's Issues:  The private company might inherit any past financial or legal issues of the target public company.

Considerations for Investors:

  • Limited Due Diligence:  Investors might have access to less information about the private company compared to an IPO.

  • Shell Company Risks:  If the target company is a shell company, there might be a higher level of uncertainty about its future prospects.

Overall, a reverse takeover can be a strategic option for a private company seeking to become publicly traded. However, it's important to carefully consider the potential risks and ensure thorough due diligence before proceeding with an RTO.

What happens when a public company is taken over

When a public company is taken over by another company, the specific outcome can vary depending on the type of takeover and the terms of the deal. Here's a breakdown of some common scenarios:

Impact on Shareholders:

  • Cash Buyout: This is the most common scenario. The acquiring company offers a premium price per share to shareholders of the target company (the one being taken over). If the deal goes through, shareholders exchange their shares for cash.

  • Stock Acquisition: The acquiring company offers its own shares to shareholders of the target company, essentially merging the ownership of both companies. The target company's stock ceases to exist, and shareholders become partial owners of the combined entity.

  • Combination: Sometimes, the deal involves a mix of cash and stock offered to shareholders.

Impact on the Target Company:

  • Loss of Independence: The target company essentially ceases to be an independent entity.

  • Changes in Management: New leadership might be brought in from the acquiring company, or there could be a merger of the management teams.

  • Restructuring: The acquiring company might decide to restructure the target company's operations, potentially leading to job cuts or changes in business practices.

Impact on the Acquiring Company:

  • Growth and Expansion: The acquisition can be a way for the acquiring company to expand its market share, product offerings, or geographical reach.

  • Integration Costs: Merging two companies can be complex and costly. The acquiring company might face challenges integrating the target company's operations and workforce.

  • Stock Price Fluctuation: The acquiring company's stock price might fluctuate depending on investor sentiment towards the deal.

Here are some additional points to consider:

  • Regulatory Approval: Acquisitions often require approval from regulatory bodies to ensure fair competition and prevent monopolies.

  • Employee Impact: Employees of both companies might face uncertainty about their job security and future career prospects in the merged entity.

  • Target Company's Brand: The target company's brand might be phased out, retained, or merged with the acquiring company's brand depending on the strategic goals.

Overall, a public company takeover can have significant consequences for all parties involved. It's a complex process with financial, legal, and operational considerations.

What happens to shareholders in a reverse takeover

Shareholders in a reverse takeover (RTO) may have a few options, depending on the specific structure of the deal. Here's a breakdown of the possibilities:

  • Sell their shares: The acquiring private company might offer a premium price per share to incentivize shareholders of the public company to sell their holdings. This can be an attractive option if the premium price is significantly higher than the current market price of the stock.

  • Exchange shares for shares:  Sometimes, the deal involves issuing new shares in the merged company to shareholders of the public company.  They would essentially exchange their shares in the public company for shares in the new publicly traded entity.  The value of these new shares will depend on the overall financial picture of the merged company.

  • Maintain ownership:  Shareholders might be able to retain ownership of their shares in the public company, even after the RTO. However, the public company will become a subsidiary of the acquiring private company. This could mean reduced liquidity for the shares, as trading volume might be lower.

The specific options available to shareholders, and the overall impact on their investment, will be outlined in the terms of the reverse takeover agreement. It's crucial for shareholders to carefully review these details and conduct their own due diligence before making a decision.

Here are some additional factors shareholders should consider:

  • Financial health of the private company:  Since the public company is essentially being acquired by the private company, understanding the private company's financial health and future prospects is important.

  • Future growth potential of the merged entity:  Evaluate the potential for growth and value creation in the combined company after the RTO.

  • Management team's experience:  The experience and track record of the management team from both companies can influence the future direction and success of the merged entity.

By carefully considering these factors and the terms of the RTO agreement, shareholders can make an informed decision about whether to sell their shares, exchange them for shares in the new company, or maintain ownership.

How Bestar can Help

Bestar has a division, Gold House M&A, that specializes in mergers and acquisitions (M&A). Bestar is relevant to both private companies considering a reverse takeover (RTO) with a shell company and listed shell companies themselves.

Listed Shell Company:

  • A public company traded on the Singapore Exchange (SGX) with minimal to no ongoing business operations or assets.

What Bestar Can Do:

For Private Companies Considering an RTO:

  • Target Identification & Acquisition: Bestar could assist in identifying suitable listed shell companies as targets for the RTO. We can help with:

  • Searching for shell companies that meet the private company's criteria (industry, financials, etc.).

  • Initiating contact and negotiating the acquisition of the shell company.

  • Navigating the legal and regulatory aspects of the M&A process.

For Listed Shell Companies:

  • Finding an Acquirer:  Bestar could help a shell company find a suitable private company for an RTO or another type of acquisition. We can:

  • Market the shell company to potential acquirers.

  • Handle negotiations between the shell company and interested parties.

  • Guide the shell company through the M&A process to ensure a successful outcome.

Benefits of Using Bestar:

  • Expertise in M&A:  Bestar has the experience and knowledge to navigate the complexities of M&A transactions involving shell companies.

  • Network of Contacts:  We have a network of contacts among private companies looking for RTO opportunities, potentially leading to a good match for the shell company.

  • Streamlined Process:  Bestar can manage the entire M&A process for both the private company and the shell company, saving them time and resources.

Important Considerations:

  • Success Fees:  Bestar operates on a success fee basis, meaning we get paid a percentage of the deal value if a transaction is completed.

In Conclusion:

Bestar could be a valuable resource for both private companies and listed shell companies involved in RTOs or other M&A transactions. Our expertise and network can help facilitate a smooth and successful process. 

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