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london aim stock exchange

06 Feb $2.14MM to Raise $12.3MM? Are You Kidding Me?

I just picked up an article about an in-vitro diagnostics company that recently listed on London’s AIM Exchange. The company was reminiscent of some previous opportunities I’ve worked with in in-vitro diagnostics, particularly those involving smart magnetic nanoparticles for better & faster blood marker detection. It was my previous affinity and understanding of biotech deals that originally drew me to the article. Then I read this:

A cursory look at Premaitha’s financials as of September 2014 shows $8.4 million in cash on hand. This was after the $2.14 million spent by Premaitha to list on AIM through a reverse merger, a hefty sum considering they only raised $12.3 million in the offering.

Mind. Blown. Simple math indicates they spent roughly 17.4% for the cost of raising the capital in their public offering. That doesn’t include the typical time cost to be listed or perhaps the equity cost to the original shareholders in the reverse merger itself. I would actually be very curious to see a detailed breakdown of the fees associated with this listing. Given the sometimes high prices for a clean, trading public shell, I would imagine a good chunk of the cost was in acquiring the shell to trade. The question that immediately comes to mind is “was it worth it?”

At some point, doing a reverse merger–unless you’re merging into an inexpensive SPAC created in-house–doing a traditional IPO or even a DPO makes more sense than purchasing an existing shell. There are some reasons where doing what Premaitha did would make sense. Such a decision likely involved speed and immediate access to the capital required. As always, the faster you wish to go, the more it will cost.

It’s still unfortunate that a company might be desperate enough to pay an excessive amount to gain access to the capital needed. With all the quantitative easing that’s gone on of late, the cost of capital has decreased precipitously in the last decade and particularly in the last five years. It’s unfortunate, that someone would be required to pay such a lofty sum for access to the public markets. I guest the prestige is worth it for some.

 

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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.