Reverse Take Over (RTO)
Definition - What does Reverse Take Over (RTO) mean?
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.
Divestopedia explains Reverse Take Over (RTO)
RTO's are great vehicles for private investors and private equity firms to monetize their investments. This is because the stock of the combined public company that is owned by the investors post-transaction is more liquid, which consequently allows for easy monetization and a valuation premium over the stock of the previously owned private company.
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