A reverse takeover is the process in which a company listed on a stock exchange is acquired by a smaller private entity. The name reverse takeover is derived from the concept of the smaller private company acquiring the larger listed company – essentially the ‘reverse’ of what is more common – larger listed companies acquiring smaller private companies.
Reverse takeovers are initiated by a private company purchasing an ever-growing stake in a listed company. This increased stake it continues to accumulate allows it to have greater influencing ability of the listed company as it pursues the takeover.
The major benefit of a reverse takeover is that it allows a private company to become a listed company without embarking on an initial public offering – although unlike an initial public offering, a reverse takeover will not generate new funds from investors.