REVERSE TAKEOVERS
Reverse Takeovers, RTO’s, ASX Suspended and Listed Shell Companies and More
At Benelong Capital Partners, we explain to our clients and stakeholders, that the process called a reverse takeover, or backdoor listing on the ASX is a Stage 1 and Stage 2 process. Benelong performs Stage 1, which involves clearing of all debts and liabilities via a DOCA and Creditors Trust. Stage 2 is the process of re-quotation on ASX, and ASX recommends using their “Application For In-Principle Advice” form because re-quotation is complex, and not guaranteed. It is a legal process where usually a private company with a business, or for example a mining asset, is acquired by an ASX shell company and the shares of the combined entity are quoted on the ASX after meeting all their detailed listing rules. This process also involves approval of the shareholders of the shell company via shareholders meeting, preparing an independent experts report and a capital raising via a public prospectus. ASIC must approve the prospectus.
Benefits of a Reverse Takeover
- There are many benefits of a reverse takeover. These are:
- - The combined value of the business or asset would be 2 to 3 times greater than the value before the transaction;
- - Both sets of shareholders will enjoy the ability to sell their shares on the ASX;
- - The ability to attract further capital or debt is enhanced when the company is ASX listed;
- - The company will enjoy greater visibility within the business community and a higher public profile, enhancing marketing efforts and growth plans;
- - Founders of the company will have the chance to plan an exit strategy and implement it;
- - A reverse takeover has similar costs to an IPO;
- - A reverse takeover may enable independent unrelated shareholders to be free of any escrow;
- - A reverse takeover involving the use of an ASX listed shell, has similar costs to an IPO, with the benefit that the funds expended to purchase the ASX listed shell will lead to a tangible asset, i.e. the ASX listed shell. Compared to a typical IPO where major costs would be paid to many different third parties, such as lawyers and accountants and such costs are not recoverable if the IPO fails;
- - After Stage 1, directors may raise seed capital from a larger pool of investors as the company is still a “listed security”.