The Toronto-based NEO Exchange launched a listing mechanism called the growth acquisition corporation, or G-Corp, earlier this year designed to help private, mid-sized companies raise capital on the public markets.Fred Lum/The Globe and Mail
A public listing vehicle created by the NEO Exchange last spring to help mid-sized companies raise financing has failed to gain traction amid declining investor interest in blank-cheque acquisition companies.
In April, the Toronto-based NEO Exchange launched a listing mechanism called the growth acquisition corporation, or G-Corp, which was designed to help private, mid-sized companies valued at between $50-million and $500-million raise capital on the public markets.
Similar to a special purpose acquisition company, or SPAC, a G-Corp is essentially a blank-cheque company created by a group of investors who first list the company on the NEO Exchange, and then seek an acquisition of an outside company in a particular sector that will eventually merge with the G-Corp to go public.
To date, however, only a single investor group has utilized the listing vehicle.
Canaccord Genuity G Ventures Corp., a G-Corp created by the investment firm Canaccord Genuity Group Inc. , listed on the NEO Exchange in July, raising $15-million through an initial public offering. The company has yet to identify a target acquisition, but said at the time that it intends to focus on acquiring companies with a value of between $30-million and $150-million.
Bay Street law firm Wildeboer Dellelce LLP had filed a prospectus with regulators to take public a G-Corp called WD Growth on the NEO last April, but withdrew its prospectus on Oct. 5, public filings show.
Jos Schmitt, president and chief executive officer of the NEO, said WD Growth is “reworking” its listing, but would not elaborate on why that was the case.
“Obviously we launched the G-Corp vehicle based on all the interest that we saw out there and expected more companies to list earlier. But there are perhaps 10 to 15 groups whom we are still having conversations with,” Mr. Schmitt told The Globe and Mail in a recent interview.
He attributed the weak uptake of G-Corps to a sudden slowdown in the SPAC market south of the border, which roughly began in May, when investor enthusiasm started waning amid regulatory scrutiny of the vehicle’s accounting practices. The SPAC market in the U.S is also heavily saturated – there are more than 460 SPACs worth US$131-billion listed on U.S. exchanges that still have to find companies to merge with over the next few years.
“You started seeing everyone and their brother launching an SPAC. It was overhyped, and so we’re going through a bit of a cooldown. Unfortunately, you sometimes do not know when is an optimal time to launch a product,” Mr. Schmitt said.
While G-Corps and SPACs are both blank-cheque listing mechanisms that give companies that intend to go public more deal certainty and a firm valuation, as opposed to the traditional IPO process, SPACs give early investors the option of redeeming their capital if they do not like a target acquisition. G-Corps do not allow shareholders to redeem their shares prior to a qualifying transaction.
“That could also explain why they haven’t been very popular,” said Norbert Knutel, a partner at Blake, Cassels and Graydon LLP.
“Once you take that redemption option away, you change your investor base. Institutional investors and hedge funds are not going to be forced into a deal when they do not have the option to exit,” he told The Globe.
Mr. Schmitt said that it was important to him when designing G-Corps to ensure that large investors, or sponsors of a vehicle, were not allowed to simply pull out of a deal after committing to it, just because they did not like a target acquisition that other shareholders had voted on.
One recent example of that involved Metals Co., a Canadian mining startup that merged with a New York-based SPAC called Sustainable Opportunities Acquisition Corp. The company intended to raise US$500-million from the merger, but only ended up raising about US$100-million, after a majority of investors redeemed their shares before the transaction was complete.
“We deliberately applied traditional lockup rules to the G-Corp,” Mr. Schmitt said.
He is still hopeful that the lacklustre interest in G-Corps so far is just temporary. “All the benefits of the vehicle are still there – certainty around price and a less-intensive and quicker public listing process. I think we just need to go through this phase and then things will start picking back up.”
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