For founders and CEOs seeking access to the public markets, a Reverse Takeover (RTO) offers a faster and more cost-effective alternative to a traditional Initial Public Offering (IPO). While the process is more efficient, it still demands precise planning, disciplined execution, and full regulatory compliance.
This guide outlines each stage of the RTO process—from early structuring and due diligence through to final listing—helping company leaders understand the key requirements and prepare effectively.
Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice.
Phase 1: Initial Agreements and Due Diligence
1. Letter of Intent (LOI)
The RTO process often begins with a Letter of Intent outlining the preliminary terms between your private company (the “Target”) and a publicly traded company (the “Listed Issuer”). The LOI defines structure, valuation, due diligence, and exclusivity, and can be binding or non-binding depending on deal terms.
Action tip: Engage legal counsel early to ensure clarity without overcommitting during negotiations.
2. Exchange Listing Requirements
The combined entity must satisfy the listing standards of the chosen exchange (e.g., the Canadian Securities Exchange (CSE) or TSX Venture Exchange (TSXV), including working-capital thresholds, governance standards, and shareholder-distribution requirements.
Action tip: Review the exchange’s criteria with your advisors early to identify any operational or capital adjustments required prior to closing.
3. Corporate Approvals and Disclosure
Once the LOI is executed, both boards approve the transaction and issue a joint press release, reviewed by IIROC and filed on SEDAR. Early transparency reinforces credibility with regulators and investors.
Action tip: Coordinate disclosure carefully across both companies to maintain consistency and compliance.
Phase 2: Structuring and Financial Preparation
4. Transaction Structure and Business Plan
Most Canadian RTOs use a three-cornered amalgamation, in which the Target Company merges with a subsidiary of the Listed Issuer, and the Target’s shareholders receive shares in the resulting public entity. This structure ensures regulatory compliance and a clear transfer of ownership while allowing the Target’s shareholders to hold a controlling interest in the public company. A comprehensive business plan—detailing operations, strategy, and financial projections is required to support the transaction.
Action tip: Ensure your plan clearly demonstrates post-merger execution and growth strategy.
5. Engaging an Auditor and Preparing Financials
Engaging an experienced auditor early is essential to ensure your RTO proceeds efficiently. Both the private company (Target) and the public company (Listed Issuer) must prepare audited financial statements that comply with Canadian securities regulations, particularly National Instrument 41-101 – General Prospectus Requirements (NI 41-101).
Although an RTO may not require a full prospectus, regulators expect prospectus-level disclosure for the resulting issuer. All financials, MD&A, and related notes must meet the same standards of accuracy and completeness as those in an IPO.
6. Financial and Capital Requirements
The exchange evaluates whether the resulting issuer has sufficient financial resources—typically enough working capital for 12 months of operations—and would require disclosure of any fundraising completed before or during the transaction.
If a financing is planned concurrent with closing, it must be fully disclosed in the listing statement or information circular, including total proceeds, pricing, use of funds, and any related-party participation.
Action tip: Coordinate financing activities with counsel and the exchange. Concurrent financings often require conditional approval prior to closing.
7. Preparing the Listing Statement
The listing statement (Form 2A) or information circular is the central disclosure document filed with the exchange to qualify the resulting issuer for trading. Under NI 41-101, it must contain “full, true, and plain disclosure” of all material facts, including:
- Audited financial statements of both entities
- Pro forma consolidated financials showing the combined post-RTO structure
- Detailed business overview and market outlook
- Management and director biographies and compensation
- Capital structure, use of proceeds, and material contracts
- Risk factors, MD&A, and any legal proceedings
Action tip: Begin drafting the listing statement immediately after signing the Definitive Agreement. Your legal, audit, and finance teams should collaborate to ensure accuracy and consistency.
8. Audited Financial Statements and Reporting Periods
NI 41-101 specifies the required audit periods and presentation standards:
- Target Company: Three years of audited financial statements (IFRS-compliant), plus interim statements if the latest year-end is more than 90 days old.
- Listed Issuer: Three years of audited financials (or fewer if inactive), plus the most recent interim statements and any material change disclosures.
- Pro forma Consolidated Financials: Combine both entities’ statements for the latest fiscal year and most recent interim period, adjusted to show the effect of the RTO.
Auditors must be registered with the Canadian Public Accountability Board (CPAB).
Action tip: Start the audit process early—especially if historical financials must be converted to IFRS. Late audits are the most common cause of RTO delays.
9. Timing and Coordination
Audited and pro forma financials are required before submitting the listing statement to the exchange. A practical schedule includes:
- Engaging auditors immediately after signing the LOI
- Delivering historical financial data within 30 days
- Completing draft audited statements before executing the Definitive Agreement
- Finalizing pro forma statements before filing the listing application
Action tip: Allocate 60–90 days for the audit process, longer for multi-jurisdictional operations.
Phase 3: Corporate Changes and Shareholder Approvals
10. Incorporating a Subsidiary (if required)
If the transaction uses a three-cornered structure, the Listed Issuer may form a subsidiary to complete the share exchange.
11. Share Exchange and Certificates
Prepare detailed share-exchange spreadsheets for all Target shareholders and deliver signed certificates to legal counsel before closing.
12. New Name and Governance
Reserve the new company name early and finalize incoming directors and officers of the resulting issuer.
13. Conversion of Debt and Rights
All convertible debt or preferred share rights must be settled or converted before closing to ensure a clean capital structure.
14. Special General Meetings (SGMs)
Both companies must hold SGMs to approve the RTO, stock-option plans, share consolidations (if applicable), and name changes. Legal counsel prepares and files the information circular with the exchange and distributes it to shareholders.
Action tip: Begin drafting early—regulatory review can take several weeks.
Phase 4: Exchange Filings and Final Approvals
15. Submitting the Listing Application
Counsel submits the listing application, including required forms, draft listing statement, and supporting documents.
16. Addressing Exchange Comments and Paying Fees
Respond promptly to exchange comments and ensure all fees are paid in full.
17. Shareholder Approvals and Disclosure
After SGMs are held, meeting minutes and resolutions are filed, followed by a Material Change Report and press release announcing approval and anticipated closing.
Phase 5: Closing and Post-Closing Deliverables
18. Corporate Filings and Share Issuance
The Listed Issuer files Articles of Amendment for any name changes, share consolidations, or new classes of shares, and obtains a new CUSIP number. Transfer agents distribute new share certificates and Letters of Transmittal to shareholders.
19. Conditional Listing and Exchange Bulletin
Upon satisfaction of all conditions, the exchange grants conditional approval and publishes the Exchange Bulletin confirming the trading date for the new ticker symbol.
20. Post-Closing Reporting
The resulting issuer completes post-closing filings including insider reports, Form D filings (for U.S. subscribers), and any Blue Sky reports.
Action tip: Maintain a compliance checklist and calendar for ongoing reporting obligations.
Conclusion
A Reverse Takeover provides a streamlined and cost-efficient route to becoming a publicly traded company—offering faster access to capital and liquidity than an IPO when executed properly.
Success depends on preparation: engaging the right advisors, ensuring NI 41-101 compliance, securing accurate financials, and maintaining transparency with regulators and investors at every stage.
Cyan Capital supports companies through the full go-public journey—from early structuring and financing to post-listing investor relations—helping management teams navigate complexity and maximize long-term value.
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