Reverse Takeover

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THE REVERSE TAKEOVER: IMPLICATIONS FOR STRATEGY
Edwin Lee Makamson, Hampton University
ABSTRACT A reverse takeover is an acquisition of a publicly traded firm by a private business in order to sell shares and raise capital. Eighty three cases of reverse turnovers were examined. While the reverse takeover was primarily a strategy to secure capital it was also a strategy by which businesses could re-brand and a strategy to gain entry to foreign markets. For investors of failed businesses the reverse takeover is an exit strategy. INTRODUCTION Do you remember ValuJet? After a horrific crash in the Everglades which killed 105 passengers this low cost air carrier reinvented itself as the successful AirTran Airlines. The Mississippi Long Distance Discount Service (LDDS), a regional low cost telephone service, became Worldcom. Fredericks of Hollywood, the bawdy women’s undergarment firm, is transforming into an innovative worldwide brand. The mechanism for each of these transformations was the reverse takeover (RTO). The reverse takeover, also referred to as “reverse mergers,” is a relatively new topic of growing interest to academics. Academic research is scant because RTOs involve a relatively small number of firms; the RTO is principally viewed as a financial move of importance to venture capitalists; and, it is typically seen only as an entry strategy to secure investment capital for small firms. RTOs have been used by large, global firms found in most stock markets. The reverse takeover is also becoming an instrument for firms to cross national borders. Recently, GLG Partners, one the largest global investment firms, relocated from the U.K. to the U.S. using this entry strategy. Other foreign firms are doing the same, including firms from developing and emergent nations. This exploratory paper examines 83 RTOs from 1994 to 2008 of which 19 were initiated by U.S. firms and 74 were initiated by firms outside the U.S. The objectives are to explore a little

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