The Reverse Takeover: Implications for Strategy

by Edwin Lee Makamson
published by Academy of Strategic Management Journal, 2010
Ref ASMJ09-07
 

The reverse takeover, or ‘reverse merger’, is a business strategy that receives almost no attention within strategic management, writes the author of this article, and is a fairly recent but growing business activity.

A reverse takeover is defined as an acquisition of a publicly traded firm by a private business in order to sell shares and raise capital. However, the author’s analysis of 83 examples found that reverse takeovers could also be used:

  • as a rebranding or ‘makeover’ strategy
  • to gain entry to foreign markets
  • as an exit strategy in the case of failed businesses.

The author analyses these options in turn, including the ‘makeover’ example of ValuJet, a regional air carrier. In 1995, the company suffered a highly publicised crash during a takeoff, followed by a second crash in 1996 that resulted in the death of 110 passengers. As a result, the carrier was grounded. Then in 1997, in a reverse takeover, ValuJet acquired Airways Corporation Inc., the holding company for AirTran Airways Inc. ValuJet was then able to re-invent itself as the successful low-cost carrier, AirTran. 

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About the author

Edwin Lee Makamson is Assistant Professor of Marketing at the School of Business, Hampton University.

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