What is a Reverse Triangular Merger?
A reverse triangular merger is a merger in which the acquisition is carried out by a subsidiary of the acquiring company.
How Does a Reverse Triangular Merger Work?
In a reverse triangular merger, a subsidiary of the acquiring company executes the purchase of the target company. When this occurs, the stock of the target company merges with the purchasing subsidiary of the acquiring company. The acquiring company, subsequently, also wholly owns the target company. The target company's shareholders now receive equity in the acquiring company. This is called a reverse triangular merger because of the three parties involved: the acquiring company, the purchasing subsidiary of the acquiring company, and the target company.
Why Does a Reverse Triangular Merger Matter?
The dynamics of a reverse triangular merger are effective for successful acquisitions where regulatory and/or ownership barriers would, otherwise, prevent a merger from occurring.