Posted by Kris Tabetando | June 10, 2020
If you own an online business producing at least $1,000,000 EBITDA per year, you can sell the business to, or merge the business with, our publicly-traded company in a reverse merger.
Our public company was set up with its sole purpose to acquire businesses.
Sell Your Online Business to our Publicly-Listed Company
Since 2007, we specialize in mergers & acquisitions of online businesses. We seek online businesses that fit the aforementioned criteria to acquire or merge with the public company.
The online business will become a Subsidiary of the publicly-traded Parent company. And the Board of Directors of the Parent will collaborate with the Management team of the Subsidiary to continue to grow the business.
This article will explain in detail how you can sell your business to the public company or merge your business with the public company.
What are the Benefits of a Reverse Merger to the Seller?
The business will get access to capital from the public markets to grow the business. This is public capital that the business could not access as a standalone private business.
The Seller will receive Cash or Shares of the publicly-traded Parent company as compensation for the business sale or merger.
As such, the Seller will unlock his liquidity in the ownership of his business as the Seller will receive liquid publicly-traded Shares of the Parent.
The business will receive the knowledge and expertise of the experienced Board of Directors of the publicly-traded Parent company.
What is a Reverse Merger?
A reverse merger is a process in which a privately-held company can go public without the high costs and complexities of a traditional initial public offering (IPO).
In a reverse merger, a private company merges with the publicly-listed company.
The publicly-traded entity was formed as a “blind pool company” or “capital pool company” by its founders. This is a company with no operations or revenues and formed in accordance with highly-regulated Toronto Stock Exchange policies. It was founded for the sole purpose of searching for viable businesses that it can acquire.
This public company is sometimes referred to as a public shell corporation.
The privately-held company merges with the public company and obtains its publicly-traded Shares and Cash. Sometimes the merged entity’s business name will be changed.
Following the reverse merger transaction, the new shareholders may decide to appoint, elect, or retain a Management team and Board of Directors.
What is a Capital Pool Company (CPC)?
A Capital Pool Company or CPC is a public shell corporation formed in accordance with Toronto Stock Exchange Venture (TSX-V) Capital Pool Company Program policies.
CPC has no commercial operations and no assets other than a minimum amount of cash. CPC is formed solely to identify assets and/or businesses to acquire or merge with, and complete a TSX-V “Qualifying Transaction.”
CPC founders’ shares are escrowed with TSX-V, are not freely tradeable, and are released incrementally from escrow after a Qualifying Transaction is executed.
According to TSX Venture Capital Pool Company policies, a CPC has 24 months from the date its Shares are listed on the Exchange to complete a Qualifying Transaction. If a CPC does not complete a Qualifying Transaction within this timeframe, and therefore fails to meet TSX listing requirements, it will be delisted or it can apply to be listed on NEX. NEX is a separate trading board of TSX-V for listed companies that have fallen below TSX-V listing requirements.
In 2020, there were 193 Capital Pool Companies seeking acquisitions to complete a Qualifying Transaction and fulfill TSX-V listing requirements.
Our Acquisition Criteria
We seek Sellers with profitable online businesses that are interested in growing their businesses with the benefit of capital from the public markets.
We seek businesses that fit this general, yet not strict, criteria:
- At least 3 years of Financials
- Annual Revenues up to $100,000,000
- Minimum $500,000 EBITDA
- All Revenues from e-commerce or online advertising
- Growing business
- Good team
We prefer businesses that sell intangible proprietary products online to a global market.
Send us a brief message via our Contact Form if you’re interested in selling your business to us.
What happens after you Contact Us?
Preliminary Due Diligence
We will have a preliminary chat with the Seller to ensure the objectives of all parties are aligned.
We will sign a non-disclosure agreement with the Seller.
Then, we will begin to perform Preliminary Due Diligence on the business of the Seller.
This will include, but is not limited to, an analysis of documents and information related to:
- Corporate Records
- Legal Matters
Making an Offer
Following the Preliminary Due Diligence, if we decide to move forward, we will submit an Offer and Term Sheet to the Seller.
Once the Offer and Term Sheet are negotiated and all parties are satisfied, we will move to perform the final Confirmatory Due Diligence.
Confirmatory Due Diligence
In this Confirmatory Due Diligence stage, we will verify and confirm the documents and information that the Seller submitted during the Preliminary Due Diligence stage.
Then, as required by Toronto Stock Exchange Venture (TSX-V) Capital Pool Company Program policy, we will deliver a formal Letter of Intent to the Seller and file this Letter of Intent with Toronto Stock Exchange.
Letter of Intent
This non-binding Letter of Intent (LOI) must be filed with TSX and announced in a press release.
The LOI press release must outline the general terms and conditions of the proposed transaction including:
- Description of the publicly-traded Parent company
- Description of the privately-held Target business
- Summary of Transaction Terms agreed to by both parties
- Conditions required to complete the proposed transaction, which normally include:
- Regulatory Approval by the TSX-V
- Approval by the Board of Directors of both parties
- Approval by the majority of the minority shareholders of the CPC, if required
- Completion of a Private Placement in a minimum amount as required by TSX-V
- Execution of a binding definitive Purchase or Merger Agreement for the transaction
Asset Purchase Transaction or Share Purchase Transaction
Every merger or acquisition transaction between any two or more businesses will be unique. There are a variety of ways that any M&A deal can be structured.
In the simplest terms possible, every M&A transaction is either an Asset Transaction or a Share Transaction.
An asset transaction involves the sale & purchase of some or all of the assets of the Seller. A share transaction involves the sale & purchase of some or all of the shares of the Seller.
Whether we structure the transaction as an Asset or Share transaction will depend on the Target business assets, operations, legal complexity, and other factors.
Definitive Purchase Agreement or Merger Agreement
Each transaction is different. It will be an Asset Purchase Agreement. Or it will be a Share Purchase Agreement. Or it will be a Merger Agreement.
As such, the binding Definitive Agreement will be customized for the specific transaction.
The Definitive Agreement will cover these areas including, but not limited to:
- Sale and Purchase (Purchase Price, Method of Payment, Form of Consideration, etc)
- Assets to be Purchased (Included Assets, Excluded Assets, Assumed Liabilities, etc)
- Conveyance of Assets (Method of Transfer of Assets, etc)
- Liabilities Not Assumed (Excluded Liabilities, etc)
- Representations and Warranties of the Buyer and Seller (Declarations by Buyer and Seller, etc)
- Closing (Closing Date, Closing Deliverables, Closing Method, etc)
- Survival of Undertakings (Survival of representations and warranties, etc)
- Pre-Closing (complete list of activities to be performed by Buyer and Seller before Closing e.g. Buyer and Seller due diligence, etc)
- Post-Closing (complete list of activities to be performed by Buyer and Seller and Broker after Closing e.g. Non-Compete, Training & Support, Transition & Migration of Assets and Vendor Contracts from Seller to Buyer, Broker Fees, Indemnification, Termination of Agreement, etc)
- Miscellaneous (Waivers, Notices, Governing Law, Arbitration Method, etc)
The Definitive Agreement will also include related Exhibits including, but not limited to:
- List of Inventory
- List of Intangible Assets (Domain Names, Website Content, Copyrights, Trademarks, Patents, etc)
- Assigned Vendor Contracts (list of vendor contracts assigned by Seller to Buyer related to Revenues, Advertising, Operations, Social Media, etc)
- Allocation of Purchase Price (allocation of the purchase price to different assets)
The Definitive Agreement may also include related Agreements including, but not limited to:
- Bill of Sale Agreement
- Domain Name Assignment Agreement
- Intellectual Property Assignment Agreement
- Promissory Note Agreement
- Security Agreement
- Escrow Agreement
- Revenue Loan Agreement
- Confidentiality Agreement
- Earn-out Agreement
- Warrant Agreement
While the transaction is being closed, concurrently, additional financing will be raised by CPC to provide additional working capital for the merged entity.
This is usually achieved by selling CPC securities including Shares and Warrants to investors in a private placement.
TSX-V Capital Pool Company Program policy requires that the merged business have sufficient capital to cover at least 12 months of operations.
What Happens After the Acquisition or Reverse Merger has Closed?
Retain Managers to Manage Operations
We believe it is in the best interest of the merged business to ensure that it will have the continued dedication of key managers, employees and contractors. Any change of control must ensure no interruption to the business operations.
As such, we will retain key managers, employees and contractors. The Seller will receive Parent company Shares as an incentive to continue his work with the business.
Corporate Governance – Board of Directors
The Board of Directors of the Parent company will direct and control the merged business for the long-term benefit of all stakeholders including shareholders, executives, employees, customers, suppliers, financiers, the government, and the community.
The Officers and Directors of the Parent company will communicate with the public markets and ensure that the business complies with all TSX regulations.
As per TSX rules, the Board will appoint, elect, or retain Directors on three required Board Committees:
The purpose of the Audit Committee of the Board of Directors is to assist the Board’s oversight of:
- The integrity of the financial statements;
- The performance, qualifications and independence of the external auditors;
- The performance of the internal financial, accounting and reporting controls and other processes;
- The company’s process for monitoring compliance with laws and regulations and the code of conduct.
The purpose of the Compensation Committee of the Board of Directors is to assist the Board in the performance of its responsibilities relating to the compensation programs in general and specifically, but not limited to, the executive officers.
Nominating and Governance Committee
The purpose of the Nominating and Governance Committee is to ensure that the Board is properly constituted to meet its fiduciary obligations to shareholders, and to assist the Board with respect to corporate governance matters, including:
- identifying, considering and nominating candidates for membership on the Board; and
- advising the Board on corporate governance matters and Board performance matters, including recommendations regarding the structure and composition of the Board and Board committees.
The Parent will establish internal controls to monitor the operations processes, finances, and progress of the merged business.
- Operational Controls
- Progress Meetings with Management
- Accounting and Technology Systems Controls
- Financial Controls
- Operational and Financial Authorizations
- Accounting and Financial Reporting
- Internal Audit
- Compliance with Canadian Bill 198 (C-SOX) and U.S. Sarbanes-Oxley (SOX)
After the transaction has closed, facilitating the integration of the acquired Target into the Parent is vital. This will involve Finance/Accounting, Management, and Technology teams working closely together.
This may include, but is not limited to:
- Alignment on Objectives
- Introduce objectives to relevant departments
- People & Culture
- Set up Hiring and Payroll systems
- Onboarding of acquired team members
- Update/Establish Operational & Financial Controls
- Set up internal controls in departments
- Accounting & Technology
- Accounting and Technology team members must work closely to ensure successful integration of accounting and IT systems
- Review the level of Legal & Compliance of the Target and update it where necessary
- Performance Tracking
- Regularly analyze business performance metrics to track the added value of the transaction over time
Send us a message via our Contact form if you’re interested in selling your business to us.