Trying to understand the difference between a reverse merger, a forward triangular merger, and a reverse triangular merger? We’ve got you covered. Keep reading to learn more.
In forward mergers, the target merges with, and into, the buyer. It eliminates the target. The buyer assumes the target’s rights, and liabilities.
In contrast, in a forward triangular merger, also known as an indirect merger, the transaction requires a third entity – a merger subsidiary, or shell company. The subsidiary company is capitalized, with the goal that it will purchase the target company. Similar to a forward merger, the target merges with, and into, the merger subsidiary. The subsidiary assumes all of the target’s assets and liabilities.
In a reverse triangular merger, there’s a similar structure to a forward triangular merger. In this case though, the buyer’s subsidiary is merged with, and into, the target company – which leaves the target company as the buyer’s subsidiary. As a result, regardless of whether the merger takes shape as a reverse triangular merger, or as a triangular merger, the consequence is the same —- the target is a subsidiary of the buyer.
Different mergers provide different advantages and disadvantages.
In triangular and reverse triangular mergers, buyers are protected from target’s liabilities – but not in a forward merger. In forward and forward triangular mergers – taxes are applied on an asset acquisition, rather than a stock acquisition. This is how most reverse triangular mergers are assessed. Forward mergers are tricky from a tax point of view, and often have severe consequences.
Third party issues: Most forward, and forward triangular, mergers can raise issues of anti-assignment, and third party consent. Reverse triangular mergers do not raise this issue.
If you need help with your reverse merger, or a reverse merger shell – we can help you.