Reverse Take Overs and Shell Companies
Many companies complete their going public transaction through a Reverse Take Over (RTO), in fact between 65-70% of companies do so through a RTO.
Don’t be confused with the American Reverse Merger,the fact is all Reverse Take Overs in Canada are done on stock exchanges while a majority of American Reverse Mergers are done on the OTCBB or OTCMarkets.
What’s the difference? The main one is that RTOs in Canada are reviewed before being approved by a regulation department on the Stock Exchange. With Reverse Mergers in the United States, there is no substantive review by any regulatory authority.
Of course, you do submit information to the SEC and the OTCMarkets however there is no review of any merit before the Reverse Merger is finalized which has caused a great many companies and investors a lot of issues.
RTOs on the other hand do not close until there is approval from the regulation department of the stock exchange the resulting merged company will list on. This avoids many problems and confusion.
The beginning of any successful RTO transaction is finding the right shell. You need to perform due diligence with the available public disclosure; are there any contingent liabilities, who are the controlling shareholders, is there any current or potential outstanding litigation? You also want to know who the directors are since they will be part of the decision to complete a transaction. Are they easy to work with? Do they keep to their word? These are all key factors.
Preferably you want to source a shell that has cash with little or no debt. The cash amounts vary in shells anywhere from $200,000 to $2-$3 million.
The process of a Reverse Take Over can vary depending on the situation but its safe to plan out 3 months for the process in most cases.
Below is a general overview of the process:
The RTO transaction is something you want to start on the right foot, at the beginning, which not many people realize, and which frequently turns out to increase costs and time as well as lowering the potential success rate fo completing the transaction.
If you are looking at completing a RTO and/or looking for a shell, please complete the form below, or contact us here.