In early October, a short article on CFO.com shook up the micro-cap space. The author posed the question “Should Microcap Companies Go Private?” That question also prompted my firm, Acquis Capital, LLC, to post a blog commenting on the article.
In short, the author said there are two ways for companies to justify being public as a microcap. Both involve leveraging publicly traded stock to grow. The first is to use stock to raise capital and the second is to use stock to do acquisitions. Acquis‘ post pointed out that the best way to make the most of being a micro-cap is to combine both (i.e. raise capital and use stock to do acquisitions). To prove the concept I wanted to share micro-caps that have leveraged their microcap status to succeed.
I’ve picked 3 companies to highlight. All have uplisted from the OTCQB to the NASDAQ and all have grown aggressively through acquisitions.
- The first is a software-as-a-service company called ARI Network Services, Inc. (NASDAQ: ARIS). While ARIS experienced strong organic growth, by the end of 2013 ARIS had also successfully completed 13 acquisitions. In December of 2013, ARIS uplisted from the OTCQB to the NASDAQ .
- The second is Staffing 360 Solutions, Inc. (NASDAQ: STAF). The staffing company completed 6 acquisitions, adding approx. $140 million in annual revenues, in the 24 months prior to uplisting. STAF up-listed from the OTCQB to the NASDAQ in September 2015.
- The third example, Solar3D, Inc. (NASDAQ: SLTD), uplisted from the OTCQB to the NASDAQ in March 2014. Prior to up-listing, SLTD acquired two profitable solar installation companies with combined annual revenues of approx. $20 million.
In 2014, only 84 out of the thousands of securities listed on the OTC made the jump to a senior exchange like the NASDAQ or NYSE Mkt. Acquisitions played a key role in the growth of many of those 84 issuers. These issuers, and many others, have uplisted by leveraging the unique attributes of microcaps to grow through acquisitions. In conclusion, a micro-cap public company is a Ferrari and M&A is the open highway. If you have a Ferrari, don’t try to take it off-road, keep it on the highway where it belongs and enjoy!
Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisition funding. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.