AFM Technical Article Podcast: Reverse takeovers

Definition: A smaller quoted company acquires a larger unquoted company via share-for-share exchange. Result = unquoted company gains control + effectively becomes listed.

• Examples: Eddie Stobart (2007) listed through an RTO with Westbury. US term = reverse merger.

Benefits:
– Faster & cheaper than IPO (can take ~30 days vs 1–2 years).
– Easier access to capital + higher valuation.
– Share-based incentives to attract staff.
– Analyst coverage often already in place.
– More resilient than IPOs in downturns.

Drawbacks:
– Seen as “poor man’s IPO” (reputation risk).
– Past scandals (e.g., US–China RTO fraud cases).
– Complex regulations: suspension risk, mandatory offer rules.
– Potential shareholder “dumping” post-deal.
– Indirect costs (acquisition premiums, investor relations).

Exam focus: In AFM, expect to explain the structure, compare to IPOs, and discuss pros/cons in scenario context. Marks come from applying benefits/drawbacks to case detail.

Takeaway: An RTO can be a quicker route to market than an IPO — but brings unique risks and regulatory challenges.

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