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19 Jan When American Firms Turn to the Australian Securities Exchange for Public Offerings

A big piece of the reverse takeover/merger world in the United States revolves around sourcing growth opportunities in foreign nations that want to list on a U.S.-based exchange. It’s not uncommon at all. It’s unfortunate that that’s where much of the fraud occurs, but recent regulations, improvement in the companies themselves and some self-filtering by deal-makers has actually helped to improve the offerings of such firms. It’s not surprising that some U.S.-based firms have opted for the same thing: performing their public offering via reverse merger outside of their “motherland.” Australia and London are often two of the most active RM/RTO markets outside the United States.

A prime, notable RTO example in Australia is that of Kim Dotcom, the notorious founder of MegaUpload. He recently listed his new startup on the Australian Securities Exchange. Another recent notable example is the 3D printing company 3D Group. These are certainly notable examples of Australian firms doing great things for the ASX, but what of the likes of Manalto doing the same thing.

Many have asked “why?” There are a number of reasons Australia may have a better reputation for RTOs. Here are some thoughts as to why.

The larger exchanges (and SEC regulatory scrutiny) in the U.S. provide such a high threshold for entrance, that many legitimate middle-market firms are not incentivized to even list. The cost (both financial and otherwise) is just too high. That means what’s left to go public are the smaller startups with less-lofty prospects and much higher failure rates. Australia, on the other hand, lists many more legitimate, profitable companies in the middle market are listed on an Australian exchange. That means a large market for legit deals surfaces where companies have a price and timing incentive to list and where they’re not burdened by the onerousness of Sarbanes-Oxley.

I hate to say less manipulators exist in Australia, but data suggests this might be true–even if the Australia-haters point to the fact that the country was started with a group of British criminals (I hope you’re picking up the thick sarcasm there). Perhaps the biggest contributor to the problem is the shear size of the American market, the mechanical ease of getting something up and trading and the potential upside when manipulation does take place.

Most of all, the cost, including attorneys, accountants and other consultants is even cheaper when performing an alternative offering in the Australian market. Perhaps the biggest boon here is that there is less of a tainted image in Australia where reverse mergers provide very legitimate public offerings for a huge host of very legitimate companies. Due to some very infamous RTO cases here in the United States, reverse mergers don’t have a very good reputation here compared to other parts of the world. In fact, the legitimacy of such reverse merger deals on the ASX are not nearly as tainted as they are on the Over the Counter exchange here in the United States.

Whatever the motivation for performing a reverse merger outside the United States, firms that go about this process without a real solid market and at least some scalable revenues may soon find themselves as one of the casualties strewn across the reverse merger graveyard. But, if done right, going public on a foreign exchange, especially if a company is trying to save a few coin and some onerous regulation may not be a bad move.

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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.