In the classic definition, a shell company refers to a company that is already traded on the stock exchange but no longer pursues an operating business.The valuable asset is the stock exchange listing, which can be used by other companies to quickly go public. The term ‘shell company’, on the other hand, can be seen as a collective term, while other terms such as SPAC, reverse IPO, reverse merger, reverse takeover and cold IPO can be understood as settlement-orientated forms of a shell company.
SPACs are a special type of shell company that became popular mainly in the USA. SPACs are established as empty shells with the aim of raising investor funds in order to find companies within a fixed time frame (usually two years) that could be lucrative for the SPAC or its initiators/investors as a result of a merger or takeover. In contrast to the classic shell company, the SPAC filled with investor funds itself searches for a suitable operating company as a takeover target. In contrast, the classic shell company is used by companies seeking to go public.
The distinction between the three terms reverse IPO, reverse merger and reverse takeover is marginal and is based on the way in which the reverse takeover is carried out and the objective it pursues. The terms originate from the field of M&A transactions (mergers and acquisitions). In contrast to normal acquisitions and mergers, in which a larger company acquires a smaller one, the word ‘reverse’ describes a backward-looking approach in which a company with a lower valuation usually takes over a company with a higher valuation by issuing new shares.
If the larger company is merged into the smaller company after the takeover, this is referred to as a reverse merger. If, on the other hand, the larger company remains a subsidiary after the takeover, this is referred to as a reverse takeover. A reverse IPO occurs when a reverse merger or reverse takeover transaction implements an indirect IPO, i.e. the aim of the takeover was ultimately to obtain a stock market listing.
The term cold IPO can in turn be seen as a collective term for the aforementioned M&A transactions, as a result of which indirect IPOs are realised through the use of companies that are still active.
In common parlance, all of the aforementioned terms are sometimes used interchangeably due to their rather limited differentiation and are often used synonymously.
What the aforementioned transactions for a fast IPO have in common is that they offer companies seeking to go public considerable time and cost advantages. Further information on the possibilities of a fast IPO can be found at www.instant-ipo.de.
