What is Reverse merger?

A reverse merger is a type of corporate transaction in which a privately held company acquires a publicly traded company, often referred to as a “shell” company, in order to become publicly listed. This process allows the private company to bypass the lengthy and costly process of an initial public offering (IPO) while gaining access to the capital markets. In a reverse merger, the private company’s shareholders exchange their private company shares for shares in the publicly traded company, and the private company takes control of the public company.

Key Features of a Reverse Merger

  • Access to Public Markets: The primary benefit of a reverse merger is that the private company can access public markets without going through the traditional IPO process. The private company gains a public listing and can raise capital through the stock market.
  • Faster Process: A reverse merger is generally quicker and more cost-effective than an IPO. The process can take as little as a few months, while IPOs can take up to a year or more to complete.
  • No Need for Underwriters: Unlike in an IPO, a reverse merger does not require underwriters, which helps reduce costs. Instead, the transaction is typically negotiated directly between the private company and the public shell company.
  • Shareholder Exchange: In a reverse merger, the shareholders of the private company exchange their private company shares for shares in the publicly traded company, usually resulting in the private company taking over the public company’s management and operations.
  • Regulatory Compliance: The private company must comply with securities regulations, such as filing with the Securities and Exchange Commission (SEC) in the U.S. or with relevant authorities in other jurisdictions. The reverse merger transaction typically requires the filing of updated financial statements, disclosures, and other documentation.

Reverse Merger in Switzerland

In Switzerland, reverse mergers are less common compared to other countries like the U.S., but they can still be a viable option for companies seeking a public listing. Swiss law allows for the use of reverse mergers, subject to compliance with Swiss corporate governance and securities regulations.

  • Swiss Financial Market Regulations: In Switzerland, reverse mergers must comply with the Swiss Financial Market Supervisory Authority (FINMA) regulations, which govern the operation of financial markets and public companies. Any reverse merger involving a public company in Switzerland must adhere to the Swiss Code of Obligations, which sets out the rules for corporate governance, shareholder rights, and disclosure requirements.
  • Listing on the SIX Swiss Exchange: For a company involved in a reverse merger in Switzerland, the goal is often to list on the SIX Swiss Exchange. The reverse merger process allows the private company to gain access to public capital markets through an already listed shell company, which can facilitate raising funds and improving visibility among investors.
  • Tax Considerations: Reverse mergers in Switzerland must also consider tax implications. While a reverse merger can be a tax-efficient method for achieving a public listing, the tax treatment of the transaction depends on the specific structure of the merger and the companies involved.

Reverse mergers in Switzerland provide a faster and more cost-effective alternative to IPOs for companies looking to go public. However, companies must ensure that the transaction complies with Swiss financial and corporate regulations to ensure transparency, fairness, and proper shareholder protection.