For companies seeking access to the capital market, an Initial Public Offering (“IPO”) is one of the conventional routes to becoming a public company and listing its shares on a stock exchange. However, another corporate strategy that may be considered is a Reverse Takeover (“RTO”).

A Reverse Takeover (“RTO”), also known as a backdoor listing, is a corporate action in which a private company takes control of a public company whose shares are already listed on a stock exchange. Through this mechanism, the private company may gain access to the capital market through an already-listed entity without having to undertake the conventional Initial Public Offering (“IPO”) process. Nevertheless, the transaction must still comply with the applicable legal requirements and capital market regulations.

Understanding how an RTO works can help assess its potential impact on a company’s financial future.

• How Does a Reverse Takeover Work?

In practice, a Reverse Takeover may involve a shell company, meaning a company that no longer has significant operating activities. If that company is listed on a stock exchange, it may serve as a vehicle through which a private company can access the capital market by means of an acquisition or restructuring transaction that complies with the applicable requirements.

An RTO may be structured in several ways, including a share acquisition, the issuance of new shares, or a business combination. The structure used depends on the circumstances of the companies involved, the parties’ agreement, and the relevant legal and regulatory requirements.

For example, a private technology company may wish to expand its operations and gain access to the capital market. It may then acquire control of a public company listed on the Indonesia Stock Exchange (“IDX”). Following the transaction, the private company’s business may become the principal business of the listed entity, subject to the applicable requirements concerning changes of control, disclosure of information, and listing rules.

In certain circumstances, the transaction may also be followed by changes to the company’s name, capital structure, management composition, or business activities. However, such changes do not occur automatically and must be implemented in accordance with the transaction structure and applicable legal requirements.

• Advantages of a Reverse Takeover Compared with an IPO

Compared with a conventional IPO, a Reverse Takeover offers several potential strategic advantages that companies may consider.

Cost efficiency. An RTO may reduce the costs associated with certain stages of accessing the capital market. However, acquisition and restructuring costs, due diligence expenses, regulatory compliance costs, and the costs of resolving issues involving the target company must still be taken into account.

Potential time efficiency. In certain circumstances, using an entity that is already listed on a stock exchange may reduce the need to begin the listing process from the outset. Nevertheless, the transaction timeline depends on the complexity of the structure, the approvals required, the condition of the target company, and compliance with the requirements of the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) and the IDX.

Corporate strategy flexibility. An RTO provides an alternative for companies seeking access to the capital market through an acquisition or restructuring transaction. It may also offer flexibility in determining the ownership structure and developing business activities, provided that the applicable requirements are met.

Accordingly, the choice between an RTO and an IPO should be based on a comprehensive assessment of business objectives, financing needs, costs, timing, and the legal risks associated with each mechanism.

• Legal Framework Governing Reverse Takeovers in Indonesia

In Indonesia, the terms Reverse Takeover and Backdoor Listing are not expressly regulated as separate transaction categories under the legislation. However, where the mechanism involves the takeover of a public company resulting in a change of control, the transaction must take into account OJK Regulation No. 9/POJK.04/2018 concerning the Takeover of Public Companies. Accordingly, a Reverse Takeover should not be viewed merely as an acquisition strategy, but also as a change in a company’s control structure that must be carried out with due regard to the principles of disclosure, investor protection, and good corporate governance (“GCG”).

• Legal Risks and Challenges in a Reverse Takeover

Although a Reverse Takeover offers a strategic alternative for accessing the capital market, it carries legal and commercial risks that private companies and investors should consider. One of the main risks of an RTO is the possibility of discovering liabilities or legal issues involving the target company that were not identified before the transaction.

Such issues may include outstanding debts, disputes with third parties, tax liabilities, contractual breaches, or non-compliance with applicable laws and regulations. These risks become particularly significant where the target company has a long operating history or incomplete corporate documentation. If not identified at an early stage, such liabilities may affect the transaction value, financial condition, and continuity of business operations following the takeover.

A Reverse Takeover requires structured transaction planning, comprehensive legal analysis, and an understanding of Indonesia’s capital market regulations. Before making a decision, companies should assess the feasibility of the transaction, determine an appropriate takeover structure, identify regulatory obligations, and develop a risk mitigation strategy.

Legal assistance from the outset can help companies and investors understand the legal implications of the transaction, prepare the necessary documents, identify potential hidden liabilities, and ensure that each stage of the transaction is carried out in accordance with the applicable requirements.

With an approach focused on business needs and legal compliance, Schinder Law Firm is ready to assist companies and investors in evaluating transaction structures and identifying potential legal risks that may affect the execution of a transaction.

For further information or consultation regarding Reverse Takeovers and corporate transactions in Indonesia, please contact Schinder Law Firm at info@schinderlawfirm.com.

Author:
Budhi Satya Makmur