Reverse Merger (I)

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Reverse Merger (I)

Reverse merger is also known as reverse takeover, reverse buyout or reverse acquisition, referring to the listing through buying a shell—a practice quite popular several years ago in Chinese Mainland. As to such listing, an unlisted company will take over a listed company, and then invest good assets in such listed company, so as to make the merging company to be the subsidiary of such listed company—this is just opposite to the normal merger and it is named as reverse merger therefore.

To apply for the listing abroad, Chinese companies shall obtain many approvals from the government authorities concerned, and the China Securities Regulatory Commission will apply some specific provisions concerning the companies applying for overseas listing. Hence, it is more difficult for private Chinese enterprises to list in North America for financing by means of IPO (initial public offering). Relatively, the reverse merger is more flexible in operation and will take shorter time and lower cost. Reverse merger is a key instrument for such private enterprises to hunt for fund through listing abroad in recent years.

At present, the advantages and disadvantages of listing and financing through reverse merger in North America are open to discussion in China. Some experts pointed out that, some irresponsible intermediary organs overstated unilaterally the effect of reverse merger for profiteering by making use of the fact that Chinese companies were not quite familiar with the North American capital market. In our opinion, reverse merger is still an effective approach for private Chinese enterprises to enter into North American capital market under the current macro-environment. Of course, we don’t accept the unrealistic overstatement about reverse merger. In fact, one of our objectives herein is to assist private Chinese enterprises to understand reverse merger in details, so that such enterprises will have a shortcut in seeking the overseas listing and avoid any unnecessary loss.