How does a reverse merger work, and what valuation specifics apply?

Reverse merger (reverse takeover, RTO): a private company is injected into an existing listed shell company. Through the combination it becomes public without a classic IPO process. Four steps:

• Shell identification: a small, often inactive listed company with a working listing.
• Non-cash capital increase: the shell carries out a capital increase against a contribution in kind — the transfer of the target's shares.
• Size ratio: the target is often 10–50x larger than the shell, so the target's shareholders receive 90%+ of the new group's shares.
• Regulatory review: on a material change of business, a follow-on prospectus obligation ("new issue").

• Faster than an IPO (3–6 months vs. 9–12).
• Cheaper, with lower underwriter fees and disclosure.

• The shell often carries latent risks (tax losses, litigation).
• Free float and trading liquidity after closing are typically low.
• The "backdoor listing" stigma can weigh on valuation.

• A shell premium of $1–3m paid to the shell's shareholders.
• The operating target valued separately via DCF and comps.

Shell / backdoor listings have historically been used mainly among small-cap names; documented RTO cases are rare and should be checked case by case.