An act where a private company purchases a
publicly traded company and shifts its management into the latter. It also normally involves renaming the publicly traded company. This allows private companies to become publicly traded while avoiding the regulatory and financial requirements associated with an
IPO. In order for a reverse acquisition to happen smoothly, the publicly traded company is usually a
shell corporation, that is, one with only an organizational structure and little or no
activity. The two businesses can then merge the private company's product(s) with the
public company's structure. It also makes initial
trading less dependent on market conditions, a key
risk in IPOs. However, it is important to note that a reverse acquisition only provides the private company with more
liquidity if there is a real market interest in it.