A Reverse Subsidiary Merger is where a subsidiary of another company, through an acquisition merges into another company and the subsidiary becomes the surviving entity. The name of the merged entity is also changed to that of the subsidiary.

Some of the reasons for the merger are economies of scale, increasing lines of distribution, manufacturing efficiency or synergies between the two companies. Another popular reason for this type of reverse merger is the use of the acquired company as a shell so that the subsidiary or surviving company can become publicly listed through the merger.

This merger allows the survivor to access the capital markets for capital and growth. It is much easier for public companies to obtain funding because their stock is an asset that can be used for finance the company. It also gives the company more exposure and allows the company to better advertise it products through press releases, public relations and investor relations.

Investors in the merged entity whether they be angel investors, venture capital firms, private equity firms, investment bankers or just average mom and pop shareholders will all benefit from the public listing since it allows “Liquidity”. This liquidity is provided in the form of a stock symbol and the ability of all these investors to now be able to sell their stock in the open market.

 There are certain tax advantages to structuring a reverse merger, so consult with tax advisers in advance to obtain the maximum tax advantage from such a merger.

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