Category Archives: Service Providers

6 Steps to Maximize Your Social Media Presence

The media landscape has been completely changed with the impact of technology. Currently, it is incumbent upon companies and organizations to create their own media. Social media is a popular channel for private companies to reach a larger audience – Facebook, Twitter, LinkedIn, Instagram, Snapchat, FourSquare, you name it. Gone are the days where companies compete for top spots in yellow pages or paying massive premiums for radio ads.

The situation is a lot more complex for publicly traded companies that are heavily regulated. However, with meticulous and proper planning, your public companies can benefit massively from the wide exposure gained from advertising on various social media platforms. Specifically, LinkedIn and Twitter are two platforms that are usually very popular and well received by shareholders and investors of public companies. Depending on the industry, Facebook and Instagram can be very helpful as well, especially for companies that have a lot of B2C business.

Facebook alone accounts for one in every six minutes spent on the internet. One in every five minutes spent on smartphones are also attributed to Facebook. Close to half of all college graduates are LinkedIn users. Over 45% of all adults who make more than $75,000 annually are on LinkedIn. Over 88% of businesses with more than 100 employees use Twitter for communication, marketing and advertising.

Here is a six-step process we have derived for maximize your social media efforts.

Step 1: Research

Find out who are talking about your company, and how. Are there any misconceptions of your business model? Are employees sharing information on the world wide web?

Always remember a cohesive social media plan should be very comprehensive. Setup alerts that track the online mentions of your company and your key executives. You will quickly find out about what people say about your company on the internet.

Step 2: Establish a Basic Presence

Make sure you secure your company’s accounts on all the major social media platforms. This is a great opportunity for your company to have a positive brand presence on the internet when people search for your name.

Step 3: Develop a Plan

Once you understand how social media can integrate with your business, you can develop a plan to achieve your objectives, and figure out how that would connect with your overall business goals. The conversation online will go on either you participate or not. Hence, if your plan is to simply continue to monitor the internet, you should at least create a social media policy.

Step 4: Engagement

If you decide to be proactive in managing your social media, you will need to figure out how much of an engagement level would you like to upkeep. While social media can be a great channel to keep your investors and key partners updated between earnings announcements, it is not necessarily worthy of an official press release. You can use your social media platforms to share press release headlines, key messages from your earnings calls, answer questions, publish white papers and offer seminars.

Step 5: Integration

Integrate your social media platforms with your digital investor relations platform (website). The website should be a hub of information that is detailed and useful. Provide regular updates of content on the site, and push the content to your social media accounts. The more your investors visit your website (also via your social media platforms), the more they will think of your website as the first source of information. Inform website visitors which social media platforms your company is active on.

Step 6: Measurement

The real value of social media programs can be measured with several metrics, gauging its progress. Many Software-as-a-Service platforms provide subscribers with analytical packages, which help you establish a baseline, target audience, and follow social media user trends over time.

Should you have any questions or if you are interested in Uptick’s Social Media Program, please do not hesitate to contact Terry Tremaine at: 604-202-7841 or terryttremaine@gmail.com

This story was written by Uptick Media and featured in Service Providers magazine.

Can New Technology Complicate Your Marketing Process?

It can be difficult to navigate modern marketing technology and take advantage of all the good things it brings to your business.

Don’t underestimate the importance of staying current and knowledgeable.

You need to know how to overcome the complications to your marketing process that new channels and tech can bring.

New technology like marketing automation helped Dropbox to increase its signups by 60 percent. This took old marketing strategy, customer referrals, and did it in a new way for the era of the millennial.

Do you want to know how to navigate these new waters and ramp up your digital marketing strategy?

Let’s get into it.

Blogging as Part of the Marketing Process

Starting a successful blog isn’t easy, but it’s worth it for the results.

Companies that blog more often get four times more traffic as those who blog less frequently, so it’s a marketing tool that can’t be ignored.

Companies don’t know what subjects to blog about, often misunderstanding what customers find interesting. A customer-centred approach is key here.

Avoid narcissism by doing topics that don’t just promote your products, but add value to readers. And don’t forget to blog more regularly so your customers always have new topics to peruse on your site.

Chatbots Are the Future

Chatbots are a new and exciting game-changer. They mean real-time consumer engagement and are a great tool for your business to be accessible and responsive.

The problem here is that not many people understand how to take advantage of them.

The vital tool to use your chatbot effectively is more information. Common customer queries should be the building blocks for scripts that you feed the bot.

For example, if you own an e-commerce site, lots of inquiries will be about shipping times and rates. This is all simple information that you already have.

Creating Interesting Content

The challenge with content is to continually create it in such a way that seems fresh and original to readers.

Common mistakes include repeating topics, especially if there is staff turnover and the employee who created the content leaves, or is guilty of publishing content that isn’t relevant or current.

This can be solved in a few ways, but the top method is to tune into social media.

Investigate what your customers are saying and mould your content around that. Create a conversation and interact with them by asking questions on posts to find out about their wants and needs.

Automate Your Marketing Process

There are a few hacks (or tips) when it comes to automation in marketing, but use the method Dropbox did if you want to imitate their success.

Use automation to reduce your cost per acquisition by providing a strong incentive and making it as easy as clicking a button to send a referral.

Bonus: the bond between your brand and your customer is made stronger with every referral and reward given.

Steve McNeill is a partner and marketing strategist with Q4 Communications, which has an innovative lead generation process called WebInsight.

This story was written by Steve McNeill and featured in Service Providers magazine.

Going Public? Put a Communications Upgrade Near the Top of Your To-do List

Congratulations on taking your company public on the Canadian Securities Exchange.  You have made a wise decision that will benefit you, your team and your company in many ways.

With your new status, however, comes responsibility to an expanded base of shareholders and a duty to maximize the value of your company in a manner different than when you were private.  Now, the value of your organization is reassessed by the investment community every second of the business day.

Build it and they will come?  Don’t believe it for a moment.  There are thousands of listed companies in North America vying for the attention of the investors you seek, and the companies that attract them are the ones who combine business success with marketing savvy to ensure they are at the front of the line when investors scout around for ideas.

Unless you know every shareholder in your company and have a good portion of the financial community in your digital rolodex, you will need assistance with communications.

How much assistance?  A typical IR budget for a microcap stock is in the range of $100,000 per year.  This includes travel to meet investors and investment professionals, participation in a handful of carefully chosen events, digital outreach to keep the story live 24 hours a day, and perhaps an external IR firm to bring an instant base of interested parties.  If you are sufficiently mature as a corporation, an internal IR manager might be a consideration.  And…we’re already closing in on $200,000.

A lot of money, right?  Well, if a $200,000 outlay adds to your market capitalization by $3 million (6 cents per share assuming 50 million shares outstanding), few will argue the money was not well spent.  Especially if you plan to raise equity capital anytime soon.

Add in satisfied investors and better sleep at night, and it really is a prudent decision.

You’ll need people you can trust to guide you in putting your strategy together.  There are plenty of hands who will take your money – ask around to make sure you team up with the ones who follow through with the promised effort.  And while a company needs to be connecting with existing and prospective shareholders regularly, only spend money on a full suite of resources when you have the corporate developments to really leverage them.

A prevented sell has the same value as a buy.  Inform your existing shareholders with regular written updates, media interviews, and an increasingly popular tool — video.  Complement important press releases with a brief video explaining your latest results, how your process works, or what your new facility looks like inside.  Let shareholders look the CEO in the eye online and take his or her measure.

A favorite related story involves a company whose stock was stuck between $0.50 and $0.80.  Management put tremendous effort into investor relations, but no matter how hard they tried they could not break through $0.80.

One day, on meeting number 200+, the company met an analyst who got the story right away and encouraged their trading desk to begin buying the stock in size.

It was not long before the stock broke through $0.80…on its way to more than $3.00.

The point is that if you have a good company, there are investors out there who will see what you see, adopt your vision and back you with money.  But connecting with them is a numbers game.  Reach out to a few dozen people and you will have to be very lucky to find backers.  Reach out to a thousand and your odds can start to look pretty good.

This story was written by Peter Murray  and featured in Service Providers magazine.

 

5 PowerPoint Tips

5 PowerPoint Tips: 

We’re seeing somewhat of a rally in the markets with most sectors experiencing upward movement.  Analysts we interview are quite bullish on the markets and this bodes well for the micro cap executives pitching their stories to investors.  This leads me to the topic this month:  creating the best presentation.

For you savvy IROs and CEOs, PowerPoint hasn’t changed much in the past decade, but it seems many executives are getting it wrong. At a recent trade show, I sat in on several presentations and was shocked at how dismal most them were. This plight led me to create 5 PowerPoint Tips on building a strong presentation.

Tip #1: HOOK: Author Sam Horn shared something with me that we implemented in our client branding and it’s been infinitely helpful. She called it “The Eyebrow Test”. If what I say to you doesn’t make you lean in and raise your eyebrows, then I’ve lost you. If you’re confused, you’re not buying. Test your pitch using this method.

Tip #2: VISUAL: Use 1-2 pictures or a video snippet to illustrate your business. A picture is worth a thousand words, and according to Forrester Research, one minute of video is worth 1.8 million words.

Tip #3: 10, 20, 30 RULE: Popular blogger, Guy Kawaski presents a very valid case when he vocalized this rule. Because most of your presentations are to investors, you’ll want to be concise, clear and avoid industry verbiage. There’s a reason why journalists write for a grade 6 level – it’s simple to understand and share. This is the goal. 10 slides with the following topics:

  1. Problem
  2. Your solution
  3. Business model
  4. Underlying magic/technology
  5. Marketing and sales
  6. Competition
  7. Team
  8. Projections and milestones
  9. Status and timeline
  10. Summary and call to action

Tip #4: 10, 20, 30 RULE continued: You should speak no more than 20 minutes, or 2 minutes a slide. This leaves you ample time for questions and further explanations regarding your technology, geology, biology, etc. If you’re slated to speak for only 10 minutes, then trim your slides to 1 minute each or combine a few of them.

Tip #5: 10, 20, 30 RULE continued again: This refers to your font – it should be no smaller than 30 point font! This forces you to choose words that are more efficient and eliminate fluff and technical jargon that so often appears in presentations.  I couldn’t read most of the font at that tradeshow, and I was positioned in the middle of the room.  And I’ve had laser eye surgery.

Remember, clarity and brevity are beautiful. We often use our Office Manager for our litmus test when creating TV spots for clients. If she raises her eyebrows and leans in, then we know we’ve got her. If she’s furrowing her brows, then we go back to the drawing board. It’s that simple.  Good luck with your next presentation; I hope you make it powerful.

Taylor Thoen is CEO of BTV-Business Television.  BTV is passionate about succinctly sharing issuer stories on BNN and Bloomberg US.    www.b-tv.com

This story was written by Taylor Thoen and featured in Service Providers magazine.

Are You Protected Against Cyber Security Attacks?

No one thinks it’s going to be them. Until it is.

According to the movies, cybercriminals operate out of abandoned warehouses, target carefully selected conglomerates and use things like “worms” and “keys” to gain access. The reality, however, is that cybercriminals, using scattergun techniques like phishing, are not out for world domination but rather a more familiar motive: money.

In 2016, 24% of breaches targeted financial organizations, 15% healthcare, 12% public sector entities and 15% targeted retail and accommodations*. Whether it’s design plans, medical records or good, old-fashioned payment card details—someone, somewhere will see it as their meal ticket.

Organizations need to build a strong security posture by implementing strategies that address internal and external threats across the entire chain. It is critical to start from the premise that systems will be breached. This perspective enhances the effectiveness of decision making related to preventing, mitigating and recovering from a breach.

Another recent development makes this a pressing imperative. Canada’s new Digital Privacy Act has introduced mandatory breach notification.  In 2017organizations will be required to notify the Office of the Privacy Commissioner, as well as the individuals affected, if the organization experiences the loss or theft of personal identifiable information that puts these people at “real risk of significant harm.” Failing to do so could result in fines of up to $100,000 per offence. This comes as part The Digital Privacy Act (formerly referred to as Bill S-4) that was put into effect in June 2015.

 

On January 19, 2017, the Canadian Securities Administrators (CSA) published Multilateral Staff Notice 11-332, stating that they expect issuers to provide risk disclosure that is as detailed and entity specific as possible, should they determine that a cyber security risk is a material risk. In order to determine materiality, the cyber security incident requires analyzing and the probability of a breach occurring and the anticipated magnitude of its effect needs to be determined. The CSA expects issuers to disclose specific risks, rather than generic risks common to all issuers, and they expect issuers to tailor their disclosure of cyber security risks to the particular circumstance. Underestimating risks leaves enterprises highly vulnerable. Poor security can lead to painful, even catastrophic, financial and reputational losses. Moreover, data breaches and other security incidents put not just individual companies, but entire supply chains, at risk. The following are three steps to build a robust security posture that will support the goals and resilience of your organization, and assist you in determining your cyber security risk.

  1. Conduct a health check of your organization’s cyber security maturity.

A health check is an assessment of an organization’s controls, security risks and threats, to define its current security posture and highlight gaps.

The health check assesses current risks to your industry and business and evaluates the strengths and weaknesses of your organization’s existing security controls.

The health check determines the impact a breach could have on your organization: operations, productivity, information assets, infrastructure, reputation, materiality of the cyber security risks and brand.

  1. Develop a clear security roadmap.

The health check will guide an organization by providing a clear map of priority risks and practical direction regarding where to most effectively focus cyber security budget and resources.

  1. Test your organization’s vulnerability to cyber-attack.

It’s essential to supplement planning with robust testing to determine your organization’s vulnerability to cyber breaches. Intellectual property, personal information, plant systems, computer servers, and mobile devices, could all be targets for attacks.

Seek objective, trusted third party cyber security expertise to assess potential weaknesses through vulnerability assessments and penetration testing of your internal and external networks and applications.

Without adequate protection, cyber security threats can put your organizations’ operations, reputation – even its existence – at risk. Vigilant assessment, planning and testing are critical to protect the bottom line.

For more information on how you can better protect your business from cyber-attacks, contact:

Danny Timmins, CISSP, National Cyber Security Leader T: 905.607.9777E: danny.timmins@mnp.ca

About MNP

MNP is a leading national accounting, tax and business consulting firm in Canada. We proudly serve and respond to the needs of our clients in the public, private and not-for-profit sectors. Through partner-led engagements, we provide a collaborative, cost-effective approach to doing business and personalized strategies to help organizations succeed across the country and around the world.

This story was written by MNP  and featured in Service Providers magazine.

 

 

All Research is Paid For

Since 2003, Fundamental Research Corp, has covered over 280 public, and 120 private companies under an issuer paid model.

It is our belief that research has always been ultimately issuer paid.  What we mean by this is that research is a cost center for brokerage firms.  While trading commissions the research generates contributes to the cost, by and large, many firms make the bulk of their money collecting fees from issuers doing financings, and part of these fees pay for research.

If an analyst has a negative rating, or target price on a company below what a firm is raising money at, the money does not get raised and the firm collects no fees.

We believe that by charging issuers directly for coverage, the transaction is more transparent, and collecting the fee upfront, allows the analyst to be independent.

Traditional models of research are becoming even more difficult since the introduction of MIFID II in Europe.  The impact of this is that institutional investors must now pay hard dollars for research as opposed to getting it for free in exchange for placing traders with the research provider.  The exception to this issuer paid research.

The impact of the above is that smaller cap firms generally do not get coverage, and things are only going to get worse.  Even when they do get coverage, the number of investors who will have access to the report is limited to the brokerage firm’s clients.

Academic studies have shown that research is the best way to get information about a company to investors.

Fundamental Research Corp solves the problems mentioned above by directly charging issuers a fee for coverage, and getting that research into as many investors’ hands as possible through our global distribution network.  To learn more about how coverage will benefit your firm, visit us at www.researchfrc.com.

This story was written by Brian Tang and featured in Service Providers magazine.

Harnessing Social Media to Reach Retail Investors

As many market participants are aware, the methods in which effective investor relations campaigns are conducted are constantly changing. For years, the assumption was that all a company needed was a phone bank with a lead list of investor phone numbers and a recent press release or corporate update to catch the attention of potential investors and pique their interest. In today’s digital world, the smile-and-dial approach of yesteryear is antiquated and is now regarded as ineffective and inefficient.

In the current investment landscape, retail investors and institutional investors alike spend a sizeable portion of their day online, just like anyone else. They may open their Facebook page first thing in the morning for news, or check their Twitter feed at lunch for updates. With our  smartphones and connected devices within arm’s’ reach at all times, these technologies have gone further than changing social interactions, and have even begun to influence the way investors uncover investment opportunities.

So, if a large portion of potential investors are using social media platforms to find news and connect with people, why not harness the power of social media to connect with potential investors and provide company news or updates?

It may not surprise you that retail investors’ trading decisions are influenced by social media. What is surprising however, is that “80% of institutional investors use social media as part of their regular work flow, and approximately 30% of these investors say information obtained through social media has directly influenced an investment recommendation or decision,” according to a recent study from Greenwich Associates.

Today, investment decisions are made because an investor has received multiple pieces of information from a variety of sources that they know and trust. As retail investors make more and more investment decisions on their own, without the assistance of an advisor, there has been a growing demand for online communities and crowdsourced investment insights where they can have open discussions about various investments with fellow traders.

While there are handfuls of investor forums out there, social media channels like Facebook, Twitter, and LinkedIn still reign supreme when it comes to targeting and reach. The ability to target followers of similar/competing companies coupled with the unrivalled user bases that these platforms possess make them ideal weapons for any investor relations warchest.

Modern investor relations campaigns require bidirectional communication, and that’s what makes these social media platforms even more useful. Not only can you share information to existing and potential investors, but you can also glean information from the very same people with polls and more. Your IR efforts should constantly be adapting to the ways that investors are gathering their information, and social media is no exception. Be sure to consult an expert though, as both IIROC and the SEC have complex rules governing such communications.

This story was written by Viride Investor Relations  and featured in Service Providers magazine.

Marketing your Private Placement online

Online investor marketing isn’t just about supporting your stock price – successful companies are now building specific marketing plans for each Private Placement raise. As you approach a financing, consider these questions:

How much of my targeted raise amount will come from my “President’s List” and dealer syndicate? If you are confident in hitting the full raise amount, that is great news, but even then, think about your share distribution. When these shares come free trading, what type of pricing support will they see in the market? In addition to bringing in dollars and expanding your shareholder base, marketing your raise gives the extra bonus of greater overall market awareness and branding. Every investor in your private placement can become an active brand evangelist in social media, investor clubs, and online message boards.

Ask yourself – is it time to expand our shareholder base? Sure, the retail investor can be reactionary, emotional, and irrational, but support in the retail market is usually the only bridge to get you from tightly held strategic shareholders to institutional interest. For early stage public companies, the retail investor is critical. Decide if there should be a retail component in your raise, and if so start building that marketing plan. Remember that attracting investor interest isn’t just about capturing their direct investment today – it is about adding their contact information to your database, and about getting them to start following your company, both online and on social media.

Don’t forget – Financings are major milestones – do not miss the opportunity to leverage them as news, especially while the raise is “live”.

The mandatory press releases announcing the opening and closing of your raise do not count as marketing!

  • How do you find new direct investors? Look to your database first – this includes your email lists, your website traffic, and your social media. Second, itemize the different marketing, newsletter writers and industry coverage touchpoints that you already have. Get them your financing details, and encourage them to distribute the news. Don’t be shy – your company is moving forward, you are taking direct investment, and it needn’t be only Capital Markets insiders “in the know”.
  • How will exemptions affect your marketing? While the “Accredited Investor” exemption is the most commonly used, the reality is that only 3% of Canadians qualify as Accredited. Even within our online community, which is purely investment based, only 16% self-identify as Accredited.
  • How do you expand your reach? One option is to include the Investment Dealer exemption, which allows anyone deemed suitable by an IIROC Dealer to be qualified. If your marketing attracts investors who don’t already have a broker, this exemption can lead to new brokerage accounts, which can be a way to “pay back” your supporters on the broker side.
  • Another intriguing option is the Offering Memorandum, which allows self-directed, non-Accredited investors to qualify. That means you can cast your marketing net even wider, as literally every investor that can afford the investment within the appropriate jurisdiction becomes your target audience.
  • Crowdfunding exemptions are designed to allow for maximum marketing reach, but have very low individual investment limits. Crowdfunding exemptions are best suited for early stage, private company funding, not multi-million dollar public company raises. Based on CEO feedback, there is value to the crowdfunding exemption, but it is more about broader exposure than raising hard dollars. If you want to leverage both the traditional exemptions and the reach of the internet, consider an online deal portal that specializes in pubco private placements.

Every financing is a valuable marketing opportunity to create news flow and to get on investors’ radars. Decide what your investor targets are, make a plan, and leverage every distribution outlet available to you.

ICO’s – The New Crowdfunding Platform: Caution, Speedbump Ahead.

As reported by the Globe and Mail on October 23 2017, the Ontario Securities Commission (“OSC”) has approved an Initial Coin Offering (“ICO”), to TokenFunder, representing its first foray into the land of crypto crowdfunding.  Responding to the markets appetite for ICO based financing, and the inherent need to develop a regulatory framework within which they will operate, the Canadian Securities Administrators has instituted a twelve month exemption to TokenFunder from the requirement to register as a securities dealer.

This funding platform is not without risk.  The underlying cryptocurrencies issued in conjunction with ICO’s may not be classified as securities. They do not convey ownership rights of a company, as is the case with the more traditional common shares, warrants, or other equity instruments.  Instead, they tend to carry with them access rights to a product or platform which has been or will be developed by the issuing company.  There is no guarantee the initiative(s) will ever be completed or commercially viable.  Furthermore, ICO’s remain in regulatory purgatory while governments, securities commissions and exchanges struggle to understand the ICO model and how best to fairly regulate it.

When a company undertakes to complete an ICO, it creates its own cryptocurrency and sells a portion of it under the terms of the ICO.  In a perfect situation, the company builds its platform, is commercially accepted, and demand for their digital currency surges, resulting in an appreciation of value for those holding their digital currency.

Cryptocurrencies are designed from the start to share some fundamental characteristics of precious metals.  After their initial issuance, the volume of additional cryptocurrency issued in a given series is structured to decline over time, creating what amounts to engineered scarcity.  This, coupled with potential success of the underlying platform which forms the basis of the ICO, can generate exponential growth in value of the cryptocurrency itself.

Perhaps the best known cryptocurrency, Bitcoin, introduced January 3, 2009 demonstrates the pinnacle to which all ICO’s strive to achieve. As of November 7, 2017, each Bitcoin in circulation is valued at CAD$9,510 each, benefiting from a wildly successful platform, and engineered scarcity, coupled with worldwide acceptance as a conveyance and store of value.  It’s important to note, however, that Bitcoin was first on the scene in 2009, prior to the explosion of the ICO crowdfunding demand.  While Ontario has just now approved its first one, the number of ICO’s worldwide has exploded, showing no signs of slowing any time soon.   With so many cryptocurrencies and platforms emerging, it is uncertain what the impact on individual investors will be as engineered scarcity, one of the fundamental pillars of the cryptocurrency model, is challenged by an explosion of digital currency entrants.

Bitcoin now finds itself facing challenges as its own success has sparked scrutiny.  More and more, digital currencies are utilized as the monetary conveyance of choice for criminal activity.  Many countries have begun the process of formulating policy with respect to cryptocurrencies and ICO’s, with a few restricting or banning outright certain cryptocurrency or ICO activity. As these digital currencies exist outside the influence of governmental monetary policy with central banks unable to manage what may soon prove to be a significant element of the money supply, regulatory concern continues to mount.  Furthermore, with significant and rapid appreciation in value, comes the question of unsustainable demand, further strengthening the mandate of the regulators.

As the OSC blazes its path towards regulating ICO’s in Ontario, investors find themselves faced with opportunity and a degree of uncertainty as the nature and extent of these regulations are as yet unknown.

This story was written by Robert Suttie, Vice President of Marrelli Support Services Inc. and featured in Service Providers magazine.

Learn more about Marrelli at http://www.marrellisupport.ca// and on the CSE website at http://thecse.com/en/services/services-for-listed-companies/marrelli-support-services-inc

FINANCIAL IMPACT OF A REVERSE TAKEOVER WITH A SHELL CORPORATION

One of the popular ways for private companies to obtain a listing status on the Canadian Stock Exchange (“CSE”) is through a reverse takeover (“RTO”) with an existing listed entity. The most common version of an RTO is when a private operating entity merges with a listed (more or less) shell corporation, effected by way of exchange of equity interests, which typically results in owners of the private entity gaining control of the combined entity after the transaction.

Understanding how the financial records of the resulting combined entity shape up is an essential factor for the leadership of the private entity to gauge the breadth of such a transaction. It is however often overlooked amidst other regulatory requirements. The International Financial Reporting Standards (“IFRS”) and its interpretation, provides specific guidance around this area, which is the subject of this piece.

Despite the public shell corporation issuing shares, from an accounting perspective these transactions are considered to be capital transactions of the private entity looking to obtain the listing status of the non-operating shell corporation. They are therefore equivalent to the issuance of shares by the private entity to acquire the net assets of the public shell corporation. Unlike a straight acquisition achieved through exchange of equity interests, where the accounting records are a continuation of the entity issuing shares, in an RTO, the historical financial records of the private entity are retained. The RTO is accomplished by recognizing, in the financial statements of the private entity, the net assets of the publicly listed shell corporation in return for shares “deemed” to be issued by the private entity to obtain a control position in the combined entity. The equity structure however, (that is, the number and the type of equity instruments issued) of the combined entity, reflects the equity structure of the publicly listed shell corporation, including the equity instruments exchanged in the RTO.

The deemed shares issued by the private entity, which is the consideration it has paid for the acquisition of the public shell corporation, are recognized at fair value and any difference between the fair value of these deemed shares and the fair value of the acquired net assets of the public shell corporation, represents a cost to the private entity. The Interpretation Committee of the IFRS points out that, for the private entity, this difference in fair values is considered to be a payment for service of a stock exchange listing for its shares, and therefore should be expensed through its profit or loss. This is in contrast to the usual treatment of cost of issuing capital, which reduces the value of the capital raised. The leadership of the private entity therefore needs to understand this and evaluate if this is an acceptable impact on their financial reporting.

Although this is a simplistic introduction of what to expect if you choose to obtain a listing on a stock exchange by way of an RTO with a listed shell corporation, accounting for such acquisitions can be quite complex. This could include determining the fair value of the consideration for the transaction (i.e. the value of the deemed shares issued by the private entity), the fair value of the net assets of the public shell corporation, non-controlling interest considerations, earnings per share calculations, to name just a few. The key thought is to ensure to involve your accounting advisors, amid other consultants, at the right time in the whole process so you have a complete picture of the impact of your desired transaction.

This story was featured in Service Providers magazine.

Learn more about Avisar at http://avisar.ca/ and on the CSE website at http://thecse.com/en/services/services-for-listed-companies/avisar.