Posted by Shane McLean on September 16, 2009
In early August I posted about CPC Combinations (here). In that post I discussed the concept of combining a public shell company listed under the TSX Venture Exchange’s Capital Pool Company (“CPC”) Program with another existing public company (instead of the typical acquisition of a private entity).
With most CPC shell companies raising only the minimum of $200,000 on their initial public offering (which, when taken with the $100,000 in seed money, would leave the company with $300,000 less expenses after the IPO), many are finding that they do not have much purchasing power, either in terms of cash in the bank or overall valuation, to go after the really interesting target companies. In order to help alleviate this problem, there is another type of CPC “combination” available in which two or more CPC shell companies combine together in order to pool their resources.
When the shell companies combine, each can only be given a value equal to its cash in the bank and the funds available to the combined company cannot exceed $2,000,000. Most CPC shells are likely to combine in this way only if they have a target company lined up already since the combined entity has only 12 months post-combination to complete its “qualifying transaction”.
At a time when the list of CPC shell companies that have not announced a qualifying transaction is approaching 150 names, combining a few of them may help the prospects for finding attractive targets and also help the whole program by reducing the glut of shell companies out there.
Posted in Capital Pool Company Program, Financing, Law, Mergers and Acquisitions, Misc., TSX Venture Exchange | 1 Comment »
Posted by Shane McLean on August 9, 2009
I have previously posted information about the TSX Venture Exchange’s Capital Pool Company Program (see here). This is the program that allows for a shell company to go public on the TSX Venture Exchange and then look for an operating business to acquire. Usually, this means finding an operating private company to combine with.
Less known is that the TSX Venture Exchange’s policies also permit CPC shell companies to “combine” with other public companies. Essentially, this means that the CPC shell invests its cash into another public company instead of finding a private company to acquire or invest in. There are some ways to structure this type of transaction to get it done fairly efficiently, but the key hurdle is convincing the board of directors (and then the shareholders) of the CPC shell that it’s a good idea.
Usually, a CPC shell company views itself as having a valuation that is at some premium to both its IPO value and the amount of cash in the bank. The logic is that, having gone through the process of obtaining a public listing, the CPC shell has an intrinsic value that is in addition to the value of the funds it has in the bank and a total enterprise value that is greater than the valuation used on its IPO. This allows the directors of a CPC shell to show some increase in valuation to their IPO investors on closing of the qualifying transaction and may help justify the decision to enter into a particular qualifying transaction.
From the CPC shell’s perspective, the downside to negotiating a combination with another public company includes: (a) the fact that other public company doesn’t value your listing because they are already publicly listed, and (b) the TSX Venture Exchange’s policies prevent the CPC shell from being valued at anything other than cash value on this type of deal. As a result, directors of the CPC shell may be loathe to recommend to shareholders that they bet on an existing public company because they may not see as much instant (i.e. paper) upside.
However, depending on what market the other public company is listed on, the other public company can usually offer to issue shares to the CPC shell at some discount to its market price, thus giving the CPC shareholders some notional return on their investment. If the other public company appears poised for growth, the CPC shell directors and shareholders just might be able to see the benefit of a public to public deal. This may be especially true if the CPC shell is getting close to its deadline for finding a qualifying transaction.
Another kind of “CPC Combination” involves combining multiple CPC shell companies into one entity in order to pursue a larger qualifying transaction. I will talk about this kind of transaction in a later post.
Posted in Capital Pool Company Program, Financing, Mergers and Acquisitions, Misc., TSX Venture Exchange | Leave a Comment »
Posted by Shane McLean on June 7, 2009
With many similarities to the TSX Venture Exchange’s Capital Pool Company Program (see my prior post on the CPC Program), the TSX has itself rolled out a program in which it will permit the listing of what are essentially shell companies with lots of cash in them for the sole purpose of finding an acquisition target. Called a Special Purpose Acquisition Corporation or “SPAC” (note that unlike my post about the CPC program when I joked that nobody calls it a “C-Pick”, in this case people do call it a “Spack”), the TSX has adopted the concept from the United States where this type of program has existed on the more junior exchanges/bulletin boards for years.
The similarities between the TSX SPAC Program and the TSX Venture Exchange CPC Program are many including (i) the small group of founders with certain minimum investment requirements; (ii) an IPO to raise funds in a shell company and (iii) a defined period of time in which to find a target acquisition. The biggest difference in my mind is size. Where a CPC shell can raise as little as $200,000 including both seed capital and IPO proceeds, a SPAC must raise a minimum of $30 Million on its IPO. The cash commitment on the part of the founders of a SPAC is larger too given that they must hold an equity stake of between 10% and 20% of the SPAC after the IPO.
According to the website SPACAnalytics.com, from 2003 to 2008 there was nearly $22 Billion raised on SPAC IPOs in the United States. However, as far as I am aware there have been no SPACs in Canada yet even though the TSX opened the program for business in December of 2008. The TSX is out there at seminars and events talking up the program in the hopes that someone will take the plunge (don’t forget that more IPOs and more listings means more revenue in the form of listing fees for the TSX which is itself a for-profit company). Unfortunately they rolled out the program in the middle of a recession and it may be a while before anyone is able to raise $30 Million for a shell company IPO in Canada.
For more detail on the program, check out the TSX’s product sheet on SPACs or give me a call.
Posted in Capital Pool Company Program, Financing, Special Purpose Acquisition Corporations, TSX, TSX Venture Exchange | Leave a Comment »
Posted by Shane McLean on May 28, 2009
Someone once asked me: ”What’s a C-Pick?” When I asked a few questions it became clear that they were asking about Capital Pool Companies or “CPCs” under the TSX Venture Exchange’s Capital Pool Company Program. (By the way, I have never heard anyone else refer to it as a “C-Pick”.)
The CPC Program essentially works like this:
Why would anyone do this? For the founders and IPO investors of the CPC shell, the hope is that the target business will ultimately be very successful and their initial small investment will be returned to them many-fold. For this reason, the pressure is on the CPC shell founders to find a viable target with good prospects. For the owners of the target it is a way to obtain a public listing for their shares, eventual liquidity (i.e. an ability to sell their ownership stake on the public market) and it may provide the company with access to public market capital (i.e. $) that is not available to it as a private company.
Why would a target do a CPC deal rather than an IPO? There is a level of skepticism in the market relating to IPOs. I think it is a bit of hangover from the dot-com bubble where people thought getting in on an IPO was the key to riches. Once bitten, twice shy. People seem more comfortable to invest a relatively small amount of money into the CPC shell IPO based on the reputation of the founders and then let those founders make the ultimate investment decision by choosing the right target. We see serial CPC founders who do it again and again and, if successful, they can build a following of investors willing to invest in their CPC IPOs. A traditional IPO works best if you have a splashy business story that makes good press and is easy to sell to potential investors. For companies that have a very viable business that represents a solid investment but may not itself be overly exciting, gaining a public listing by being a target company in the CPC process may be the preferred route.
There are a lot of details about the process and a lot of pros and cons that I don’t have the space to include here. If you have questions about the CPC program please feel free to give me a call. I have experience on both sides of these kinds of transactions (i.e. CPC shell and target).
Posted in Business Structure, Capital Pool Company Program, Financing, Mergers and Acquisitions, Misc., TSX Venture Exchange | Leave a Comment »
