REVERSE MERGER

Presented by:KUNAL 16TEJAS 23

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

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 One

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 Two

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.

Step Three

The Process

Reverse Triangular MergerKEY 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