Reverse Takeover (RTO) in Australia: 2025 Guide for Investors & Founders

Reverse takeovers (RTOs) have become an increasingly popular route for Australian businesses to go public, offering a faster, sometimes more cost-effective alternative to traditional IPOs. With changes in ASX regulations and more startups hunting for capital in a competitive market, understanding the ins and outs of RTOs is essential for founders, investors, and anyone curious about the future of Australian listings.

What is a Reverse Takeover? The Mechanics Explained

Unlike a standard IPO, where a private company offers new shares to the public, a reverse takeover sees a private company merge with or acquire a listed shell company. The private entity essentially ‘takes over’ the public company, using its listing status to enter the stock exchange—hence the term ‘reverse’.

Here’s how the process typically unfolds:

• Identification: The private company seeks a suitable ASX-listed shell (often a dormant or near-dormant company).
• Negotiation & Due Diligence: Both sides negotiate terms; the private company scrutinises the shell for hidden liabilities, while the shell’s shareholders assess the incoming business.
• Shareholder Approval: The transaction is usually subject to shareholder votes for both entities.
• Asset Injection: The private company injects its business into the shell via asset sale or share exchange.
• Rebranding & Relisting: The merged entity often rebrands and relists with a new ticker, business model, and management team.

In 2025, RTOs are more rigorously scrutinised by the ASX, particularly around disclosure and the ‘genuineness’ of the shell company. The exchange now requires shells to have minimal assets and no ongoing business activities, and all RTOs must meet updated listing standards for financial viability and governance.

Why RTOs? The Pros, Cons, and Trends in 2025

RTOs are attractive for several reasons:

• Speed: An RTO can be completed in a fraction of the time needed for an IPO, sometimes in as little as 3–6 months.
• Cost: While not always cheaper, RTOs can reduce some underwriting and marketing expenses.
• Certainty: Avoids the market volatility and last-minute surprises that can derail IPOs.

However, RTOs also come with risks and drawbacks:

• Legacy Issues: Shell companies may carry historical liabilities or compliance concerns.
• Perception: Investors sometimes view RTOs as ‘backdoor listings’, potentially associating them with lower-quality companies.
• Regulatory Hurdles: The ASX’s 2025 reforms have tightened rules around RTOs, particularly for tech, biotech, and resources companies, requiring more robust financials and clear business plans.

Real-world example: In late 2024, fintech startup PayPilot completed a reverse takeover of ASX-listed shell company Delta Resources. The transaction allowed PayPilot to access public funding quickly, but it was required to meet the new ASX listing rules, including demonstrating $1.5 million in working capital and appointing a majority-independent board. The deal reflected the trend of early-stage tech firms using RTOs to leapfrog into public markets amid fierce competition for venture capital.

Investor Perspective: What to Watch in an RTO

For investors, RTOs can offer an opportunity to get in early with high-growth companies. But the risks are real—due diligence is crucial. Here’s what to scrutinise:

• Management Team: Does the incoming leadership have a track record of growth and governance?
• Shell Company History: Are there any legacy legal or financial issues?
• ASX Disclosures: Review prospectuses and announcements carefully, as RTOs must now meet the same disclosure standards as IPOs.
• Lock-up Periods: Are existing shareholders or promoters restricted from selling their shares immediately?
• Valuation: How does the implied valuation compare with sector peers and similar IPOs?

The ASX’s 2025 reforms have made these factors more transparent, but they’ve also raised the bar for RTOs, aiming to protect retail investors from poorly vetted deals.

The Future of RTOs in Australia

With economic conditions in flux and venture capital tightening, RTOs are likely to remain a fixture in the Australian market—particularly for startups in fintech, clean energy, and biotechnology. The ASX’s stricter 2025 rules signal a shift towards higher-quality listings and greater transparency, but they haven’t closed the door on this creative path to public markets.

For founders, RTOs offer a strategic option to access growth capital and build brand credibility. For investors, they demand careful research but can offer early access to companies with breakout potential.