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Archive for the ‘Capital Pool Company Program’ Category

Review of TSX Venture Exchange New Listings Activity in 2013

Posted by Shane McLean on January 20, 2014

 Each year the TSX Venture Exchange publishes a summary of its “new listings” activity.  New listings include initial public offerings (IPOs), qualifying transactions through the Capital Pool Company program, companies completing a reverse takeover and companies moving up from the NEX exchange or down from the TSX.  Here are some highlights of the data for 2013:

  • In 2013 there were a total of 158 “new listings” compared to 240 in 2012 and 334 in 2011.  The reduction in new listings activity that we saw in 2012 clearly continued into 2013.
  • Of the new TSXV listings in 2013 there were just 52 IPOs compared to 125 in 2012.  15 of those were traditional IPOs of operating companies (vs 44 in 2012) and the other 37 were IPOs of Capital Pool Companies (vs 81 in 2012).  The rate of both traditional IPOs and CPC IPOs dropped significantly for the second straight year.
  • The amount raised in TSXV IPOs during 2013 was $118.7 Million, down 21% compared to 2012.
  • Mining issuers showed a 40% drop in TSXV going public activity in 2013 compared to 2012.  Only 7 mining issuers went public on the TSXV by way of a traditional IPO in 2013.
  • In 2013 there were 66 CPC qualifying transactions completed on the TSXV (vs 61 in 2012) and 13 Reverse Takeovers (vs 16 in 2012).    These are two categories where the numbers were actually fairly consistent year over year.

Clearly, 2013 was another bad year for TSX Venture Exchange new listing activities.   It continues to be a tough market in which to go public on the TSXV.  Here’s hoping that things turn around for 2014.

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TSX Venture Exchange Rescinds “Founder Share Restrictions”

Posted by Shane McLean on August 19, 2013

Since 2007 and 2008 the TSX Venture Exchange has had restrictions regarding the number of “founder shares” that could be outstanding after any new listing such as an IPO, reverse takeover or Capital Pool Company qualifying transaction.  Although other types of shares are included, the “founder share” definition was often employed to catch shares that were originally issued for less than $0.05 per share.  Unless a qualifying major financing happened at the same time as the new listing, the restrictions prohibited new listings where the “founder shares” would represent more than 15% of the outstanding shares post closing.

Companies completing an RTO or a Capital Pool Company QT would often run up against this restriction, especially if the private target company had a small number of shareholders who received their shares for a minimal investment amount.  In those kinds of deals, the private company founders often end up holding a large piece of the public company, triggering the “Deal Structure and Founder Share Guidelines”.  In my experience, the TSXV was often flexible in applying the Founder Share Restrictions and would sometimes accept that the dollar value paid by the founders for their initial allotment of private company shares was not really indicative of the full value “paid” by the founders through their years of effort in growing the company.  But even in those cases, coming up against the Guidelines could slow a deal down while you work on building an argument and dealing with the Exchange.

The TSXV recently announced that they have rescinded the Deal Structure and Founder Share Guidelines.  This is a positive change in my view.  The guidelines seemed unnecessary in light of the many other safeguards built into the TSXV policies around new listings to ensure that the deal value is justified and that private company founders stick around for a while after closing.

Posted in Capital Pool Company Program, Financing, Law, Mergers and Acquisitions, TSX Venture Exchange | Leave a Comment »

Review of TSX Venture Exchange New Listings Activity in 2012

Posted by Shane McLean on May 14, 2013

Each year the TSX Venture Exchange publishes a summary of its “new listings” activity.  New listings include IPOs, qualifying transactions through the Capital Pool Company program, companies completing a reverse takeover and companies moving up from the NEX exchange or down from the TSX.  Here are some random reflections after reviewing the data for 2012:

  • In 2012 there were a total of 236 “new listings” compared to 334 in 2011.  I would not think the reduction in new listings activity comes as a shock to anyone that works in or follows public markets in Canada.
  • Of the new listings in 2012 there were 121 IPOs.  44 of those were traditional IPOs of operating companies (vs 47 in 2011) and the other 77 were IPOs of Capital Pool Companies (vs 112 in 2011).  The rate of traditional IPOs is fairly steady year over year.  The year over year drop in CPC formation would seem to line up with market sentiment over a good portion of 2012.
  • In 2012 there were 61 CPC qualifying transactions completed on the TSXV compared to 87 during 2011.   It would be interesting to know whether there is a causal relationship between this statistic and the drop in CPC formation during 2012.  For example, did the drop in qualifying transactions in 2012 lead to a drop in interest in forming a CPC or was it the other way around?  It is not possible to say from reviewing the publicly available data but with CPC formation and qualifying transactions accounting for 60-65% of new listings activity on the TSXV over the last couple years, any drop in CPC activity hurts the Exchange.
  • In 2012 there were half as many Reverse Takeovers on the TSXV as in 20112 (18 in 2012 vs 36 in 2011).  I would hazard a guess that this is closely tied to the general drop in investment activity that was felt by market participants in 2012.  If doing an RTO will not open up new sources of funding for private enterprises it greatly reduces the incentive.

All in all, the 2012 TSX Venture Exchange new listing statistics do not reveal any surprises and seem to confirm what those of us who work with companies in the public markets felt in terms of market sentiment and availability of capital during much of 2012.  Here’s hoping for a pick-up in 2013!

Posted in Capital Pool Company Program, Financing, Mergers and Acquisitions, TSX, TSX Venture Exchange | Leave a Comment »

Common Mistakes for New Public Companies

Posted by Shane McLean on February 21, 2013

Here is a link to a recent article in the Financial Post (http://business.financialpost.com/2013/02/19/just-done-an-ipo-here-are-some-common-mistakes-to-avoid/) which comes from the Ontario Securities Commission. It sets out some of the more common mistakes the Ontario Securities Commission has seen from newly listed public companies. The mistakes listed essentially boil down to: (i) not putting enough effort into compliance with rules and laws applicable to public companies; (ii) not understanding securities laws; and (iii) issues with disclosure, either by providing inappropriate disclosure or not providing disclosure on a timely basis.

I have seen a lot of issuers make a lot of mistakes and would put the disclosure issues at the top of the list in terms of importance. The other issues around the rules, securities laws etc. can often be dealt with by ensuring the company has good external advisors. In my  view the disclosure obligations are something that management must really internalize and understand because, at the very least, they need to have a good sense of when to call on their external advisors for advice on whether and when disclosure is required.

Posted in Capital Pool Company Program, Law, TSX, TSX Venture Exchange | Leave a Comment »

The Capital Pool Company Program

Posted by Shane McLean on February 12, 2013

I recently posted a list of  the top 10 most popular posts from this blog and at #1 was one from May 2009 about the TSX Venture Exchange’s Capital Pool Company program.    I have recently updated that post for the LW Connect Blog and here is the updated version:

The TSX Venture Exchange’s Capital Pool Company Program is increasingly becoming the dominant way to attain a public listing on the TSX Venture Exchange.   The Exchange describes the program like this:  “A unique listing vehicle, the Capital Pool Company program provides an alternative, two-step introduction to the capital markets. The CPC program introduces investors with financial market experience to entrepreneurs whose growth and development-stage companies require capital and public company management expertise.”

For those who are not familiar with the CPC Program, here is a quick high level overview:

  • A group of people, usually between 4 and 6, get together and incorporate a company and form its board of directors.  Together they invest at least $100,000 in seed money into that company with at least $5,000 each.
  • The company has no assets other than the seed money and no operating business.  Because of this you will often hear people referring to a CPC as a “shell” company.
  • With the help of a banker the CPC shell completes an initial public offering.  It must raise a minimum of $200,000 in gross IPO proceeds using a prospectus  from at least 200 public shareholders.  Following its IPO the CPC will trade on the TSX Venture Exchange.  The process is not unlike a traditional IPO except that you have very little business and financial information to disclose because the CPC is relatively new company and has no business or assets (other than cash).
  • Once the IPO is out of the way and the shares are listed on the TSX Venture Exchange, the sole purpose of the CPC shell is to seek out an operating business or other assets to acquire within 24 months from the initial TSX Venture Exchange listing date.
  • Most often, the target business is acquired through a “reverse takeover” in which CPC shell most pays for the acquisition by issuing new shares to the owners of the target business.  The “reverse takeover” part comes in because at the end of the day the total number of shares issued to the owners of the target often represents a majority of the outstanding shares of the public company on a post closing basis, meaning that the previous owners of the target now, as a group, control the overall company.

Why would anyone do this?  For the founders and IPO investors of the CPC, 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 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 and it may provide the company with access to capital that is not available to it as a private company.

As you can imagine, there are far too many nuances, qualifications and details about the process to do it justice in this post.  I plan to follow up with a series of posts dealing with aspects of the CPC program in a little more depth so stay tuned to LW Connect.  If you have questions about the CPC program please feel free to give me a call ((613) 599-9600 ext 262) or send me an email (smclean@lwlaw.com).  LaBarge Weinstein LLP has experience acting on both sides of these kinds of transactions (i.e. CPC shell and target).

Posted in Capital Pool Company Program, Financing, LaBarge Weinstein, TSX Venture Exchange | Leave a Comment »

Roundup of Most Read CBLB Posts

Posted by Shane McLean on January 22, 2013

I was reviewing the stats for this blog recently and thought it would be neat to list the top 10 most popular posts to date:

10.  Update on the Ontario Emerging Technologies Fund (October 13, 2009)

9.     CPC Combinations Part 2 (September 16, 2009)

8.     From Wellington Financial -5 Pre Deal Questions to ask Your Venture Debt Lender (October 28, 2009)

7.    Ontario Small Claims Court Limit Raised to $25,000 (January 13, 2010)

6.    CPC Combinations Part 1 (August 9, 2009)

5.    What are Preferred Shares? (July 2, 2009)

4.    What is a Special Purpose Acquisition Corporation?  (June 7, 2009)

3.    Unanimous Shareholder Agreements  (September 22, 2009)

2.    Financing Term Sheet Basics (June 21,2009)

1.    What is the Capital Pool Company Program?  (May 28, 2009)

Since these posts continue to draw a lot of attention, my plan over the next several months is to review and update each one.  Most of these date back 3 years and things change so they could use a refresh.  Thanks for reading everyone.

Posted in Business Structure, Capital Pool Company Program, Financing, Law, Misc., Special Purpose Acquisition Corporations, Startup, TSX Venture Exchange, Venture Capital | Leave a Comment »

A Caution for CPCs Looking at Foreign Targets

Posted by Shane McLean on December 13, 2012

Here is a copy of my latest posting at LWConnect, the LaBarge Weinstein LLP Blog:

A word of warning to any Capital Pool Companies considering the acquisition of a company or assets located outside of Canada and the United States: If your CPC is a reporting issuer in Ontario and the resulting issuer will not be a mining or oil and gas issuer, the disclosure for your transaction must be made by prospectus.  Basically that means that rather than preparing a filing statement or information circular as you do with all other CPC qualifying transactions you will have to prepare a non-offering prospectus and file it with the Ontario Securities Commission for review.  At that point, the OSC takes over the review of your disclosure and the TSX Venture Exchange’s review becomes an exercise limited to ensuring that the resulting issuer will meet TSX Venture Exchange listing requirements.

Given recent highly publicized scandals involving companies with foreign assets listed on Canadian exchanges, the OSC has been subjecting these transactions to a surprisingly high level of scrutiny, including review of the business and financial merits of the transaction. It can be debated whether this degree of scrutiny into the business/financial side of a deal by the OSC is appropriate, but it does seem to be the new way of things so CPCs looking at foreign qualifying transactions should be prepared.

Posted in Capital Pool Company Program, Law, Mergers and Acquisitions, TSX Venture Exchange | Leave a Comment »

Congratulations to Chemaphor Inc. for raising funds in a tough market

Posted by Shane McLean on October 25, 2009

 Congratulations to Chemaphor Inc which announced Friday (see press release) that it successfully raised a round of just over $1.2 Million!  No small task in this still tentative financing market.  Great work was done on the agency front by Bloom Burton & Co.  and others.

 Chemaphor is a LaBarge Weinstein client and I have had the privilege of working with Chemaphor for about 6 years.

Posted in Capital Pool Company Program, Financing, LaBarge Weinstein, Misc., TSX Venture Exchange | Leave a Comment »

CPC Combinations Part 2

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 | 2 Comments »

CPC Combinations Part 1

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 | 1 Comment »