What Does Reverse Take Over (RTO) Mean?
A reverse take over (RTO) results when a buyer issues its own stock as purchase price consideration to a seller. The buyer issues so much of its own stock that the seller's shareholders end up controlling the majority of the outstanding stock of the combined entity. The buying company can either be active or inactive (a shell company).
When the buyer is an active company, the RTO is usually conducted using a relative valuation. This means that both companies are valued using the same methodology or multiple, which then determines the value of the target company. If the target company's value exceeds the value of the buyer (which is typically the case in an RTO), then the target company owners end up with a majority of the post-transaction shares outstanding in the combined entity, effectively rendering them in control.
