Reverse Takeovers
In the second phase of the Reverse Takeover (RTO) process, after the Letter of Intent (LOI) and Definitive Agreement (DA) are established, the focus shifts to preparing the necessary corporate changes. These steps ensure the smooth transition of ownership and governance, helping both the Target Company and Listed Issuer align for the successful completion of the transaction. This guide highlights the key actions required during this phase.
- Incorporating a Subsidiary (if required)
In some cases, the Listed Issuer may need to incorporate a subsidiary to facilitate the RTO. This subsidiary will be instrumental in the transaction structure, such as a three-cornered amalgamation, where the subsidiary merges with the Target Company.
Action Step:
- Determine whether incorporating a subsidiary is necessary based on the structure of the RTO.
- Preparing Share Exchange Documentation
A critical part of the RTO is ensuring that all shareholders of the Target Company receive their appropriate shares in the resulting issuer. A spreadsheet should be prepared detailing how many shares each Target Company shareholder will receive, along with their contact information for the issuance process.
Action Step:
- Create a detailed share exchange spreadsheet for the Target Company shareholders, including addresses for share delivery.
- Delivering Shareholder Certificates
To facilitate the smooth transfer of shares at closing, the shareholder certificates for the Target Company should be delivered to the legal counsel of the Target Company. This step ensures that all certificates are signed and ready for transfer when the transaction is completed.
Action Step:
- Ensure the delivery of signed shareholder certificates to the Target Company’s legal counsel for closing.
- Reserving the Target Company Name
As part of the transition, it’s important to reserve the new name for the Target Company. This name reservation ensures that the resulting issuer will be able to operate under the desired corporate name post-closing.
Action Step:
- Reserve the new company name for the Target Company as part of the corporate restructuring.
- Confirming Incoming Directors and Officers
After the transaction closes, the governance of the Resulting Issuer will change. Confirming the incoming directors and officers of the Resulting Issuer is a vital step in ensuring the company’s leadership is ready to take over after the transaction is finalized.
Action Step:
- Confirm the incoming directors and officers who will manage the Resulting Issuer after closing.
- Due Diligence for the Listed Issuer
The Target Company will likely request due diligence information on the Listed Issuer. This includes financials, legal documents, and other corporate information that needs to be provided to the Target Company to ensure both sides are transparent and prepared for the transaction.
Action Step:
- Provide all requested due diligence information on the Listed Issuer to the Target Company.
- Determining the Value of Listed Issuer Shares
To finalize the share exchange, the value of the Listed Issuer’s shares needs to be determined. This can be done using the last traded price or through a valuation methodology agreed upon by both parties.
Action Step:
- Determine the value of the Listed Issuer’s shares for the exchange with the Target Company’s shareholders.
- Drafting and Approving Sub Receipts
Sub Receipts are documents confirming the issuance of shares in exchange for subscription receipts or other financial instruments. A draft of these Sub Receipts must be prepared and circulated for legal approval.
Action Step:
- Draft the form of Sub Receipts and circulate them for legal approval before closing.
- Conversion of Share Rights and Debt
Before closing, all share conversion rights and debt instruments must be converted into Target Company shares or agreements must be reached to convert these on terms approved by the Listed Issuer. This ensures that any outstanding obligations are addressed prior to the RTO completion.
Action Step:
- Finalize the conversion of share rights and debt into Target Company shares or agree on terms for conversion.
Conclusion
Like most steps in the RTO process, actions can be streamlined to speed up the process. Having a thorough understanding of the requirements needed to prepare the necessary corporate changes during the RTO is important to achieve efficiencies.
Ready to take your company public?
Whether through a reverse takeover (RTO), direct listing, or IPO, Cyan Capital can help streamline the process and connect you with the right professionals and investors to ensure a successful listing. Stay tuned for the next post, where we’ll continue guiding you through the RTO process.