Due Diligence: Reverse Takeovers

Summary

This practice note discusses the due diligence conducted by the purchaser, shell entity and agents in a reverse takeover ("RTO") transaction. A RTO is where a non-listed company becomes the owner of more than 50% of the shares of a listed company (effectively, a shell company) by way of an asset acquisition, amalgamation or merger. The private company steps into the place of the public company by acquiring control of the public company and, therefore, becomes a listed company. This allows the acquiring company to go public without the traditional initial public offering process. However, the RTO can be a serious risk to the parties because the acquiring private party becomes responsible for all existing assets and liabilities of the public company. Consequently, a lengthy and fulsome due diligence process is crucial to identify, mitigate and allocate the associated risks of the RTO. This practice note includes information about each parties' respective due diligence process, the ...