A reverse merger is a merger in which the surviving entity is the smaller company or subsidiary, or in which a private company merges into a listed company to gain listed status. In India it is carried out through an NCLT-approved scheme under Sections 230 to 232 of the Companies Act, 2013, and involving listed companies requires SEBI and stock exchange approvals under listing rules.
Why reverse mergers
- Retain licences or listing of the smaller entity
- Use tax losses where permitted
- Simplify group structure
Process
- Valuation and swap ratio.
- Board approvals and scheme drafting.
- Exchange and SEBI observations for listed companies.
- NCLT meetings and approval.
- Implementation.
Regulatory scrutiny
SEBI scrutinises backdoor listings and may impose conditions to protect public shareholders.
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Conditions for tax neutrality and carry-forward of losses must be met.
Frequently asked questions
Is reverse merger a shortcut to IPO?
It can provide listing access, but regulators apply safeguards and it is not necessarily faster.
Can a holding company merge into its subsidiary?
Yes, through an NCLT scheme or fast-track route where applicable.
Are shareholders' approvals needed?
Yes, from shareholders and creditors as directed by NCLT.
How long does it take?
Often many months.
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