What are the reverse merger, forward merger and subsidiary merger?

The reverse merger, forward merger and subsidiary merger are explained below along with their advantages and disadvantages.

Reverse merger

In reverse merger,

• A private firm becomes a public company.
• A smaller company obtains a bigger company.
• Parent company mergers with its subsidiary.
• Company in losses obtains the company in profits.

Advantages

The advantages of reverse merger are as follows −

• Private firm become public company without IPO
• Tax benefits

Disadvantages

The disadvantages of reverse merger are as follows −

• Shareholders value remains the same.
• Can/sometimes lead to operations inefficiency.

Forward merger

Forward merger is also called direct merger. In this, two companies are combined directly to form a single company under the name of the acquired company.

Acquired company accepts all the assets and liabilities of other company

Advantages

The advantages of forward merger are as follows −

• Easy to integrate.
• Continuity of acquired business.

Disadvantages

The disadvantages of forward merger are as follows −

• No legal protection.
• Time taking.

Subsidiary merger

In a subsidiary merger, the company acquires another through its subsidiary/subsidiaries.

In this, a new subsidiary is created or the company uses an already existing one/ones.

Advantages

The advantages of subsidiary merger are as follows −

• Tax benefits.
• Loss is limited.

Disadvantages

The disadvantages of subsidiary merger are as follows −

• More legal work.
• Merging financial statements.

Nagasravan Tamma

Published on 13-Jul-2021 13:21:15

• Related Questions & Answers
• What are forward triangular merger and reverse triangular merger?
• What are the risks in merger and acquisitions?
• What are the issues in Merger & Acquisitions?
• Explain Merger and its types
• What is the merger model and the factors considered?
• Explain the concept of merger and acquisition
• How are intangibles considered in the merger model?
• How are synergies calculated in the merger model?
• Define the terms acquisition, takeover, merger and amalgamation
• Explain the steps in constructing merger models
• Explain the importance of valuation in merger and acquisition
• Explain the concept of Post-Merger Integration (PMI)
• Explain discounted cash flow analysis in merger and acquisitions
• How purchase consideration is done in the merger model?
• Difference between Forward Engineering and Reverse Engineering