A reverse merger, also known as a reverse takeover or reverse IPO, is a process where a private company acquires a public company, allowing the private company to bypass the lengthy and complex process of going public. In a reverse merger, investors of the private company acquire a majority of the shares of a public shell company, which is then combined with the purchasing entity. The private company trades shares with the public shell in exchange for the shells stock, transforming the acquirer into a public company. Reverse mergers typically occur through a simpler, shorter, and less expensive process than a conventional IPO.

Advantages of reverse mergers include a simplified process, less risk, and lower legal and accounting fees compared to a conventional IPO. Reverse mergers also allow a private company to become public without raising capital, which considerably simplifies the process. However, reverse mergers may have drawbacks, such as the potential for bad history and unforeseen liabilities from the public company, and the need for a comprehensive investor relations and investor marketing program. Private-company CEOs may also be inexperienced in the world of publicly traded companies unless they have past experience as an officer or director of a public company.

Reverse mergers are suitable only for companies that are not in need of cash in the short term, as there is no immediate capital raised during the process. The Securities and Exchange Commission (SEC) has highlighted the fraud risks posed by some reverse mergers, warning that the public should be cautious when investing in these deals.