What is a "reverse merger"?

A reverse merger is a process by which a private company becomes a publicly traded entity by acquiring an already existing public company, typically one that may be underperforming or without significant operations. This method allows the private company to bypass the lengthy and often costly initial public offering (IPO) process, providing a quicker route to access public capital markets.

In this situation, the private company's shareholders usually receive a majority of the publicly traded company's shares, thereby taking control of the public entity. This process offers advantages, such as increased visibility and credibility that comes with being a public company, as well as the potential for easier access to funding through equity markets.

Understanding the mechanics of a reverse merger is crucial, especially for private entities looking to grow and expand their operations through a public platform. In contrast, the other choices describe different concepts related to mergers and acquisitions rather than specifically addressing the unique characteristics of a reverse merger.