Reverse takeovers need strategic vision — Marlene Street Forrest
CIBONEY Group Limited, which has sold all its assets and bled itself of cash while waiting for a buyer for the listed vehicle, is this month being advertised again for sale as a vehicle for any company which wants a simplified route to public listing and the benefits of traded stock.
Prospective buyers will be considering the reverse takeover (RTO) process in which private companies seek to become publicly traded without going through an initial public offering (IPO). The private company needs to buy enough shares to control the publicly-traded company. The private company’s shareholders then exchanges their shares and so effectively the company becomes publicly-traded. The RTO is often called a reverse merger or a reverse IPO.
Locally, Financial Sector Adjustment Company (Finsac) is currently seeking buyers for its 72 per cent stake in Ciboney Group, totalling more than 393 million shares. The company has requested that bids be submitted by November 8, 2021, along with the company profile, and the proposed business venture.
The move appears to be a last-ditch effort to offload the company, which Finsac has been advertising since 2015.
Ciboney was one of the assets taken over by Finsac under a bailout programme by the Jamaican Government in the 1990s to rescue companies in the troubled Jamaican financial sector.
Ciboney is traded at 0.66 cents per share as at Friday October 15, valuing the company at $360 million. Finsac’s shareholding would be valued at $259 million.
Marlene Street Forrest, managing director of the Jamaica Stock Exchange, when asked if Jamaicans were possibly superstitious about failed companies and so were avoiding the vehicle on offer, said this was not likely to be a consideration.
She told the Jamaica Observer, “I do not think there is any level of superstition at all,” adding that company valuation was more relevant.
Street Forrest commented that, in the case of shell companies for sale, “Valuation is always an issue when one looks at either listing a company or acquisition and, hence, that can be a deal-breaker.”
The most recent RTO on the exchange was SSL Venture Capital Limited, which emerged from C2W Music Limited in 2018, legally changing its name.
Its predecessor, C2W Music Limited, was a listed company that published music and managed artistes. This company was launched in 2011 and listed on the junior market in early 2012, but was sold to SSL after accumulating a deficit of US$1.23 million.
SSL Ventures itself is now struggling, three years later, with management indicating they are considering various options open to them for the company’s future.
Street Forrest commented, “Businesses that are taken over require that the new owners lead the company in line with its new vision and apply strategies for success. If a new owner has that formula right, then the business going forward will succeed, bearing in mind that the new owners are not obliged to follow either the business or business model of the former owners. Many great companies globally have been born from RTOS or acquired shell companies.”
She noted that, despite the fact that almost every sector has been affected by the novel coronavirus pandemic in Jamaica, and that the JSE has also been affected, the exchange has seen 12 listings since the start of 2021 and $33.65 billion in capital has been raised. Companies were still bullish on the benefits of the exchange, she outlined.
“Six listings were on the main market of the exchange and five were on the private market, with one on the junior market,” the managing director clarified.
She concluded, “Businesses have been dealing with sheer sustainability issues, but in our conversations with them, they are positioning themselves to access capital.”