Reverse Takeover - RTO

AAA

DEFINITION of 'Reverse Takeover - RTO'

A type of merger used by private companies to become publicly traded without resorting to an initial public offering. Initially, the private company buys enough shares to control a publicly traded company. The private company's shareholder then uses their shares in the private company to exchange for shares in the public company. At this point, the private company has effectively become a publicly traded one.

Also known as a "reverse merger" or "reverse IPO"

INVESTOPEDIA EXPLAINS 'Reverse Takeover - RTO'

With this type of merger, the private company does not need to pay the expensive fees associated with arranging an initial public offering. The problem, however, is the company does not acquire any additional funds through the merger and it must have enough funds to complete the transaction on its own.

VIDEO

Loading the player...
RELATED TERMS
  1. Takeover

    A corporate action where an acquiring company makes a bid for ...
  2. NYSE Arca

    A securities exchange in the U.S. on which stocks and options ...
  3. Golden Parachute

    Substantial benefits given to a top executive (or top executives) ...
  4. Back Door Listing

    A strategy of going public used by a company that fails to meet ...
  5. Public Company

    A company that has issued securities through an initial public ...
  6. Merger

    The combining of two or more companies, generally by offering ...
RELATED FAQS
  1. Why do companies merge with or acquire other companies?

    Some of the reasons for mergers and acquisitions (M&A) include: 1. Synergy: The most used word in M&A is synergy, ... Read Full Answer >>
  2. How does the strength of the IPO market affect the drugs sector?

    The strength in the IPO market is an important indicator of liquidity, risk appetite and innovation in the drugs sector. ... Read Full Answer >>
  3. Why are the terms 'merger' and 'acquisition' always used together if they describe ...

    The terms "merger" and "acquisition" are used together because they both describe processes by which two companies become ... Read Full Answer >>
  4. What level of mergers and acquisitions is common in the chemical sector?

    The level of mergers and acquisitions (M&As) in the chemicals sector has surged to an all-time high since the turn of ... Read Full Answer >>
  5. How can a company buy back shares to fend off a hostile takeover?

    There are several reasons why a company may choose to repurchase some or all of the outstanding shares of its stock. This ... Read Full Answer >>
  6. Why are some spin-offs taxable and some are tax-free?

    The manner in which a parent company structures the spinoff and divests itself of a subsidiary or division determines whether ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Investing

    A Guide To Spotting A Reverse Merger

    This corporate action can be profitable for investors who know what to look for.
  3. Insurance

    The Wonderful World Of Mergers

    While acquisitions can be hostile, these varied mergers are always friendly.
  4. Investing

    SPACs Raise Corporate Capital

    These public shell companies hold many advantages over private equity. Find out more here.
  5. Entrepreneurship

    Should I Have An IPO on My Business

    The ultimate outside investment opportunity is going public through an initial public offering. However, IPOs come with costs that you may want to avoid.
  6. Fundamental Analysis

    Why Investment Bank IPO Valuations Go Wrong

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  7. Stock Analysis

    Adjusting Price Charts To Secondary Offerings

    Secondary offerings may require rapid readjustment of trading strategies.
  8. Investing

    How To Track Upcoming IPOs

    Interested in investing through IPOs? Here is the list of free sources for information on upcoming IPOs.
  9. Investing

    American Airlines & US Airways Merger: It Matters!

    While the two airlines' merger creates a new giant in the industry and reduces choice for consumers and employees, investors should benefit.
  10. Economics

    What is a Management Buyout?

    A management buyout, or MBO, is a transaction where a company's management team purchases the assets and operations of the business they manage.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center