White Knights or Machiavellians? Understanding the motivation for reverse takeovers in Singapore and Thailand

This paper analyzes 47 reverse takeovers (RTOs), in which privately held firms acquire public firms to obtain listing status in Singapore and Thailand between 2007–2015. Unlike U.S. RTOs in prior studies, these transactions cannot be regarded as short-cuts to bypass listing rules since merged firms must meet the same minimum listing requirement as firms listing with IPOs. Rather, private firms treat RTOs as an opportunity to become public firms without immediate dilution by acquiring smaller firms at bargain prices. By examining shareholder circulars and analysis of transaction characteristics, we find that co-parties tend to cite growth from business diversification as their motivation for RTOs. Distressed public firms more frequently emphasize the motivation to reorganize and revive by merging with stronger private firms. Analysis of return and financial accounting performance shows that the merged firms experience improved growth and generate positive wealth impact; thus, offering opportunity for incumbent shareholders of public firms to recover some of their investment value.