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

Banking & FinanceFinance ManagementGrowth & Empowerment

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