27% Less OTC Graduates In 2015 Than 2014.

27% Less OTC Graduates In 2015 Than 2014.
In their January 2016 newsletter, OTC Markets Group announced that they continue to be the “Global Leader in Exchange Graduates”. OTC Markets Group also highlighted that “Over the past five years, nearly 400 companies have used OTC Markets Group as a springboard to a national securities exchange listing” (bold emphasis added).
With 60 graduates, the OTC had 51 more graduates than the junior exchange with the second highest number of graduates (the TSX with 9 total graduates). While its clear that the OTC Markets produces more graduates than any other exchange, 2015’s 60 graduates are 23 (or about 27%) less than the 83 OTC graduates of 2014. It is also less than the average of approx. 80 graduates/year over the last 5 years (400÷5).
In their newsletter, the OTC Markets Group did not elaborate on the decrease in graduates. This decrease got me thinking; why did less OTC companies uplist in 2015?
I came up with four possible answers:
Regular Fluctuation: Based on the “nearly 400 companies [have graduated in the last 5 years]” stat, the average graduation rate was approx 80/year. While a 25% fluctuation from the average is significant, with so few graduates annually, just a handful of companies can have a big impact.
Issuers Are Staying On The OTC: Over the last couple of years the OTC Markets has made great strides, improving the standards of both their QB and QX tiers. Perhaps this increased quality of the QB and QX has made more issuer comfortable staying on the OTC for longer.
Less IPOs/Reverse Mergers: 2015 was one of the slowest years for IPOs and reverse mergers. In 2015, IPOs were down 34% from 2014 and reverse mergers were down 42%. Less new issuer joining the OTC may mean less issuers trying to uplist.
Seasoning Rules: Issuers who have gone public via reverse merger must comply with “seasoning rules” that require certain issuers to trade on the OTC (or similar exchange) for a minimum of one year before joining a senior exchange. Whiles these rules aren’t new, they may discourage companies from quickly jumping from the OTC to a senior exchange.
Those are my guesses as to why there were nearly 30% less up-lists in 2015 than 2014. Perhaps I am off the mark. I had a hard time finding up-list data for 2013, 2012, or 2011. It would be interesting to look at some more data to see what insights it might provide… maybe another day!

 


About Ben Kotch:

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.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR ENTERTAINMENT PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

Unicorn Shareholders Ready To Leave Fantasy Land.

Unicorn Shareholders Ready To Leave Fantasy Land.

In a previous post, “For Unicorns, It’s a Long Road Out of Silicon Valley.“, I discussed the issues with unicorn exits. Now, it seems like the dreamers of Silicon Valley are beginning to wake up.

A recent article on TechCrunch titled “Secondary Shops Flooded With Unicorn Sellers“, shows concern is growing in the heart of unicorn land. VC’s, employees, and even founders are all looking to exit their unicorn holdings. One of the article’s sources added “The smartest inside money is trying to get out for the first time in six years”.

Struggling IPO markets (January saw not one IPO and recent unicorn IPOs have had poor results) , ratcheted valuations, unicorn failures, and large firms devaluing their unicorn holdings , have those holding unicorn shares worried about becoming “bag holders”.

So far, secondary trades continue to go through. While the “premium” unicorns are still receiving strong valuations, other unicorn sellers are having to take lower prices. Time will tell if this is the extinction of unicorns or just a market correction.


 

About Ben Kotch:

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.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR ENTERTAINMENT PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

Micro-Cap IR Basics.

Micro-Cap IR Basics.

I often encounter micro-cap CEOs who want to increase liquidity and the valuation of their stock. These CEOs tend to think a micro-cap IR (investor relations) firm is their solution. While micro-cap IR firms can be very helpful with crafting and disseminating a micro-cap company’s message, there is no magic overnight solution to liquidity and market valuation.

First off, I am not an IR professional but I have had a lot of experience with micro-cap IR from an investor and consult prospective. In my opinion, the two most important pieces to micro-cap IR success are business progress and communication. If your business is progressing and you do a good job communicating your story (and progress) to shareholders, not only will you gain traction on your own but, you will get much more value from any micro-cap IR firm you choose to engage.

Business Progress

The first piece, business progress, is something the management team of any public company should have a strong handle on. After all, you are in business to build a business! If you worry more about your business growing and less about the market, you are on the right track. For the purpose of this post, I will offer one piece of advice – remember that setbacks are only stepping stones on the path to success. H. Stanley Judd (a little-known author with some fantastic quotes) said;

“Don’t be afraid to fail. Don’t waste energy trying to cover up failure. Learn from your failures and go on to the next challenge. It’s ok to fail. If you’re not failing, you’re not growing.” – H. Stanley Judd

Communication

To continue off of Mr. Judd’s quote, you need to HONESTLY communicate with the market regularly (good or bad)! Because micro-caps have little analyst coverage and/or similar information easily available to the public,  it’s very important to tell the market what you are trying to do and how you plan to do it. According to the Harvard Business Review “Wall Street Rewards CEOs Who Talk About Their Strategies“.

Below I highlight two general philosophies that I believe are key to the success of any micro-cap IR strategy; (1) treat all shareholders the way you would want to be treated and (2) present yourself professionally. I’ve also included links to a few free webinars that should set you on the path to micro-cap IR success.

Treat All Shareholders the Way You Would Want to Be Treated – The age old adage, “treat others the way you want to be treated”, definitely applies to micro-cap IR.  Imagine if you were a shareholder in a public company (who bought stock in the open market), or better yet, a large shareholder who invested thousands, hundreds of thousands, or millions of dollars in a company’s public stock (the exact type of investor many mico-cap CEOs want to attract). Wouldn’t you want to be updated regularly on the business, good or bad? Well, if you want to attract investors (especially large and loyal investors) you need to treat all shareholders the way you would want to be treated! Update them, respond to their queries, consider their position when making decisions, make them feel like they are part of the team, etc.

As an added bonus, you may find that treating shareholders well will convert those shareholders into your biggest supporters. If you do it right, not only will they invest in your stock but they will also work to help you succeed! You will find that, if you treat shareholders well, they will become your own grass roots IR and sales “militia”. Best part is, this grass roots team will be better than free because they will be buying your stock while they help the business in other ways!

Present Yourself Professionally – Do you have a professional website, updated social media accounts, a strong physical presence, easy to find contact info (that works!), and an IR website? Are you responsive to inquiries, do you proof read/format your press releases properly, do you make updated investor information (presentations, news, filings, etc.) easy to find, do you regularly update investors through conference calls or press releases, does your story flow from press release to press release? If you want the market to believe your company is the “real deal”, and thus buy your stock, the answer to all of the above questions should be a big YES!

Technical Tips – While the above tips are more general philosophy, there is also a lot of technical work that goes into IR communication. Below are two links to free webinars that will guide you through building a strong micro-cap IR program (before you start paying for outside help).

Small-Cap Webinar Series from Vintage (a division of PR Newswire): “With first-hand “how-to” advice expertly structured for small and micro-cap companies, this six-part series will walk listeners through the steps needed to transparently and effectively communicate with current shareholders and prospective investors.”

Check out the entire free webinar series from Vintage HERE.

IR Best Practices for Entrepreneurial & Development Stage Companies from OTC Markets: “Please join John Heilshorn, Partner at the investor relations firm LHA, and Bob Power, Vice President of Corporate Services at OTC Markets Group, for a webinar on how to develop a successful investor relations program for small-cap, growth companies. Listen and share your questions as we discuss best practices to engage shareholders.”

Check out the free webinar from OTC Markets HERE.

There you have it. In my opinion, those are the micro-cap IR basics. Build a real business and communicate with investors and you will have a foundation that any micro-cap IR firm can build off to exponentially increase your liquidity and valuation (if you still even need outside help when your done).


About Ben Kotch:

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.

For more, please follow on Twitter.


NOTE: This blog and all of its contents (the “Site”) are for entertainment purposes only. The views expressed are solely those of the author. This Site should not be construed as an offer to buy or sell any securities or as an offer to transact. Nothing on this Site should be considered financial, legal, or tax advice.

NYSE Mkt & NASDAQ Listing Requirements.

NYSE Mkt & NASDAQ Listing RequirementsManagement teams of OTC issuers often speak about “up-listing” to senior exchanges. Joining the NYSE Mkt (f/k/a: AMEX) or NASDAQ have a number of benefits that result in generally increased valuations and liquidity.  Increased liquidity and valuation is a result of analyst coverage, the opportunity to be included on indexes (like the Russell Microcap Index), greater access to capital, a more valuable acquisition currency, and higher listing standards.

One of the biggest differences between OTC issuers and NASDAQ/NYSE Mkt listed issuers is that listed issuers must meet a higher standard.  Both NYSE Mkt & NASDAQ listing requirements require that issuers meet certain financial, liquidity, and corporate governance standards. If qualified, most micro-caps will up-list to either the NYSE Mkt or the NASDAQ Capital Market (the easiest of three NASDAQ tiers to qualify for). Both the NYSE Mkt and NASDAQ Capital Market have very similar listing requirements and some requirements are easier to meet than others.

Both exchanges require a minimum share price, number of shareholders, minimum number of shares in the public float, independent directors, audit committees, annual meetings, increased shareholder rights, and more. Most of these requirements can be met with some work and the help of the right advisers, attorneys, and accountants.

The more difficult NYSE Mkt & NASDAQ listing requirements for OTC issuers to meet are usually financial. To qualify for the NASDAQ Capital Market, an issuer must have a minimum stockholder’s equity of $4,000,000.  To list on the NYSE Mkt, an issuer must have a minimum shareholder’s equity of $4,000,000 or have a minimum $75,000,000 market cap, or have over $75,000,000 in assets AND $75,000,000 revenues.

Most micro-caps don’t have $4,000,000 in shareholder’s equity and many even have negative shareholder’s equity. Shareholders equity (often referred to as book vale) is equal to total assets minus total liabilities. Creating shareholder’s equity is the goal (and challenge) of most businesses and micro-caps are no different. Micro-caps usually have two options to build a positive book value; (1) raise significant capital through equity financing or (2) complete an acquisition using substantial equity. To see how one OTC issuer did both, check out this free case study from Acquis Capital: “A Micro-Cap Success Story”. If an issuer can meet the minimal financial requirements the remainder of the up-listing process is just a matter of crossing the “t”s and dotting the “i”s.

So there you have it, build a financially strong business and you will meet NYSE Mkt or NASDAQ listing requirements! Once you up-list you will find it easier to raise capital on more favorable terms, build liquidity for your stock, increase your market valuation, and use your stock for acquisitions.

See the NYSE Mkt listing requirements HERE.

See the NASDAQ listing requirements HERE.

 


About Ben Kotch:

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.

For more, please follow on Twitter.


NOTE: This blog and all of its contents (the “Site”) are for entertainment purposes only. The views expressed are solely those of the author. This Site should not be construed as an offer to buy or sell any securities or as an offer to transact. Nothing on this Site should be considered financial, legal, or tax advice.

En Route To IPO: Spotify Raised $500MM With Notes Convertible At A 17.5% Discount To Market.

En Route To IPO: Spotify Raised $500MM With Notes Convertible At A 17.5% Discount To Market.

Spotify (the Swedish music streaming unicorn) just raised $500 million through convertible notes that “would turn into discounted shares in the company were it to go public“. Those in the micro-cap space are very familiar with notes that convert into stock at a discount and many think these types of notes are exclusive to the micro-cap space. Spotify is just another example of the prevalence of discounted convertible notes in many areas of corporate finance.

The sated conversion price is a 17.5% discount to market. Whats interesting is that, the 17.5% conversion discount is only applicable if the company goes public within one year of issuance. For every six months (after the first year) Spotify waits to IPO, 2.5% in additional discount is added to the initial 17.5% discount.  

It seems like Spotify is using this offering to raise capital more like a public company and less like a private company. Perhaps the company anticipates a strong IPO and/or strong growth in the coming months and has decided to leverage this optimistic view of the future with this “future priced” offering.

Spotify has not set an official IPO date. The slow down in IPOs (January 2016 saw not one IPO) and trouble with unicorn IPOs, as a large number of potentially overvalued unicorns rush for the door, has me a bit surprised Spotify opted to tap this type of financing. A Swedish newspaper reports that Spotify is eyeing joint listing in Stockholm and the U.S. Based on the growing discount feature of the convertible note, I have a feeling we will see a Spotify IPO relatively soon.

Another sign (and very interesting on its own) that Spotify may be headed for an IPO in the near future is Warner Music Group CEO Stephen Cooper’s comments to investors on February 4th. Warner owns a 2-3% stake in Spotify and Mr. Copper stated “in the event we do receive cash proceeds from the sale of these equity stakes, we will also share this revenue with our artists”.

 


About Ben Kotch:

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.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR ENTERTAINMENT PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.

How to Finance A Reverse Merger Transaction.

How to Finance A Reverse Merger Transaction.At Acquis Capital, we are often approached by private companies that are in the process of going public through a reverse merger transaction (a/k/a: reverse takeover). Often these private companies are seeking capital to purchase a public shell (a/k/a: a public vehicle), “clean up” a shell (eliminate old debt, complete past-due fillings, hire attorneys and accountants to help finalize the reverse merger transaction, etc.), and grow their business and/or do an acquisition.

Purchasing or cleaning up a public shell is an expense that most investors have little interest in funding. So, how do you buy a public shell with limited capital? The answer is very similar to a post on Acquis’ blog titled “Micro-Cap Acquisition Financing: Seller Financing Makes Any Acquisition Possible“. In a previous posts on this blog I discussed how a “flexible seller is the key to making any acquisition work” and the same is true for a reverse merger transaction. After all, a reverse merger transaction is a merger!

As with traditional m&a transactions, stock consideration and seller notes are the only things a skilled negotiator needs to complete a reverse merger transaction. I’ve seen private companies get great “clean” shells for only seller notes and/or less than 10% equity. I’ve also seen companies pay $1,000,000+, over 10% equity, and seller notes for nearly identical shells to those acquired with no cash down. I even seen companies pay hundreds of thousands of dollars for shells that needed A LOT of expensive work to clean the shell up to the point where it was actually usable!

With a good “shell broker”, an exciting story, and the ability to “sell” a shell owner on your business; anyone can finance a reverse merger transaction with little or no cash down.


About Ben Kotch:

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.

For more, please follow on Twitter.


NOTE: This blog and all of its contents (the “Site”) are for entertainment purposes only. The views expressed are solely those of the author. This Site should not be construed as an offer to buy or sell any securities or as an offer to transact. Nothing on this Site should be considered financial, legal, or tax advice.

Do your Targets Believe? The Key to Micro-Cap Acquisition Financing.

Micro-cap Acquisition Financing

As a member of an acquirer’s management team, one of the best ways to ensure the success of transaction is to get sellers to believe in the future of your business.While there are a number of micro-cap acquisition financing options (see my other post: “Micro-Cap Acquisition Funding – 5 Ways for MicroCaps to Fund Acquisitions.“) the most valuable micro-cap acquisition financing tool is an excited and flexible seller.

There are two ways a seller can provide micro-cap acquisition financing, (1) a seller’s note (debt) or (2) stock consideration (equity).  Seller notes and stock consideration are tools used by almost every acquirer (public or private, big or small) uses to finance acquisitions. In fact, about 18% of all M&A transactions in 2015 were entirely stock. Micro-cap acquirers are uniquely positioned to amplify the power of both seller notes and stock consideration.

  1. Seller NoteSeller notes allow an acquirer to purchase a target and and pay for it overtime (usually with the target’s cash-flows). Seller notes are a very common tool but a seller will usually only accept a note as payment if they believe in the acquirer’s business and management team.  A unique advantage of using seller notes for micro-cap acquisition financing is that often those notes can be converted into equity (or purchased by a third party and converted into equity) at a higher equity valuation than prior to the acquisition. Seller notes issued by a microcap acquirer can also offer sellers more protection (than equity) and the potential for upside through an equity conversion down the road.
  2. Stock Consideration – Stock is another great way to finance an acquisition but it is often a tool reserved for public companies. While public acquirers offer sellers liquidity and a clear valuation for their stock, private acquirers can’t offer liquid stock (and the stock may not be liquid for years until an IPO or acquisition) and the actual value of the stock being offered is more abstract. Large companies understand the value of their equity as an acquisition currency but, sometimes micro-cap companies underestimate the value of their stock as a tool to complete acquisitions. When equity plays a small role in microcap acquisition financing it is usually for one of two reason; (1) the seller isn’t excited about the future of the acquirer or (2)  the acquirers stock hasn’t performed well and exemplifies all of the negatives of a “penny stock”. Both of those problems are completely in the control of the acquirer’s management team!

There are many cases where 100% traditional financing actually makes sense (entities with strong cash flows, assets, or immediate tangible synergies resulting from the acquisition). Occasionally microcap acquirers attempt to secure traditional financing for grand acquisitions that no serious funding source would ever be comfortable financing. While traditional acquisition financing may not be available for some acquisitions that doesn’t mean they aren’t possible, especially for publicly traded companies.

In a previous post I discussed the “5 Ways for MicroCaps to Fund Acquisitions” and pointed out that; “A flexible seller is the key to making any acquisition work.” Combining seller notes with stock consideration could result in a transaction closing with no cash or outside financing. Even if a seller was only willing to finance part of an acquisition it could still be a huge advantage to a cash strapped acquirer. Not to mention, third party financiers really like to see sellers (who usually have a lot of industry expertise) taking stock or notes and showing they believe in the acquirer’s business future.

So there you have it. The secret to microcap acquisition financing is seller financing. If you can get the seller(s) to see your vision, and believe in it, any acquisition is possible!


About Ben Kotch:

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.

For more, please follow on Twitter.


NOTE: This blog and all of its contents (the “Site”) are for entertainment purposes only. The views expressed are solely those of the author. This Site should not be construed as an offer to buy or sell any securities or as an offer to transact. Nothing on this Site should be considered financial, legal, or tax advice.

Acquisition Success In Waltham.

Acquisition Success In Waltham.

Waltham, MA, home of my alma mater Bentley University, is now the home of a company that can say they (very) successfully integrated an acquisition. Bit9 + Carbon Black just announced that they will be changing their name to “Carbon Black” approx. two years after Bit9’s acquisition of Carbon Black.

Since the acquisition Carbon Black has grown from 12 customers, when acquired, to over 1,000. Growth of the combined entity continues to be explosive with over 70% revenue growth in 2015 (2015 revenues reached over $70 million).

Just last year the company added 200 employees (bringing their total to over 500) and they are “still hiring very aggressively“.

To date, the company has raised $174.5 million as they look toward an IPO. While the exact IPO timeline isn’t clear, I believe we will see something sooner rather than later.


About Ben Kotch:

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.

For more, please follow on Twitter.

 


NOTE: This blog and all of its contents (the “Site”) are for entertainment purposes only. The views expressed are solely those of the author. This Site should not be construed as an offer to buy or sell any securities or as an offer to transact. Nothing on this Site should be considered financial, legal, or tax advice.