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reverse takeovers in Australia

02 Jan Australian Reverse Takeovers Reflect Tide Shift

In what could be seen as the ultimate shift in fate, Australian commodity companies that once went public through reverse takeovers a decade ago from failed dot com technology firms are now becoming the target in tech reverse mergers on the Australian Stock Exchange.

The failing dot com companies of the early 2000’s became targets of numerous reverse takeover bids by Australian commodity firms. Bolstered by the increasing commodity demand brought by China, the last decade has been good for such companies. The tide has now turned in the opposite direction. In a weird twist of fate, failing Australian commodity companies are now becoming the RTO targets for non-other than Australian technology firms.

From the WSJ:

Falling commodity markets have dragged down mining equities and crimped credit conditions for small companies, especially those without producing mines to generate cash. The value of commodities such as iron ore and coal, Australia’s two biggest exports, have fallen sharply due to a substantial rise in supply of the raw materials as mines planned during boom times enter production.

Tech firms are receiving more benefit from their commodity counterparts as many such commodity-based public shells hold greater cash on their balance sheets and more overall shareholders than the first generation technology public shell corps. Cash is helpful, but having existing shareholders circumvents the need to provide investor demand for a reverse takeover transaction, a need that is often difficult in such deals.

We’ve discussed before how RTOs on the Australian Stock Exchange are much more common and lack the tainted image many Over the Counter stocks hold here in the U.S. That doesn’t mean they don’t have fraud in such deals Down Under, but the percentage instances of them have been lower. In particular, Chinese reverse mergers here in the United States have significantly tainted the market’s image. One of the more recent and most famous Australian RTOs was that of Kim Dotcom, creator of the file-sharing service MEGA.

Of the 32 backdoor RTO listings on the Australian Stock Exchange this year, many are tech firms that have emerged out of failed mining and oil companies. Markets ebb and flow and shifts like this are natural. It’s fascinating to see how things have played-out over the last decade, particularly in a market which is a bit less diverse in terms of business types than what is found in the United States.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.