sc capital partners rto
DESCRIPTION
Reverse Merger TransactionTRANSCRIPT
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Reverse TakeoversPrivate to Public
IMPLEMENTATION PLAN
SC CAPITAL PARTNERS
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Table of Contents
• Part I: Introduction to Reverse Takeovers (RTOs)
• Part II: SC Capital Partners (SCCP) Approach
• Part III: Value Creation Plan• Part IV: RTO Examples
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Part I: Introduction to RTOs
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Part I: Introduction to RTOs
• What is a Reverse Takeover (RTO)?• Why go public via RTO?• Who are the parties involved?• What is the process?• When does an RTO make sense?• Where will the company trade?
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Part I: What Is an RTO?• A publicly owned and trading shell company
acquires a private company in a reverse takeover (RTO)
• The shell company has – little or no assets– no operations– existing shareholders– existing market-makers
• Shell company usually gets 5% to 10% of the shares in “New Co”
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Part I: Why Go Public Via RTO?
• Greater access to capital• Increased liquidity• Premium valuation• Equity for acquisitions• Cost advantage over IPO• Significantly reduced lead time vs. IPO
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Part I: Public Cos Trade at PremiumValuation Ratio Private
Company Median
Public Company Median
Public Company Premium
Price/Net Sales 0.7 1.1 57.7%
Price/Gross Cash Flow 8.0 13.2 64.8%
Price/EBT 8.2 13.1 60.8%
Price/Net Income 9.3 18.2 96.2%
Based on data from 4,528 private company transactions and 397 public company transactions across all industry groups fromJanuary 1996 to August 2002. Universe restricted to transactions under $100 million.
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Part I: Cost and Time AdvantagesExchange # of Cos Cost of Shell Timing
Pink Sheets 4,500 $1 - 200,000 60 - 90
OTC BB 2,200 $250 – 750,000
60 - 120
AMEX 1,800 Varies 90 - 180
NASDAQ small cap
2,100 Varies 90 - 180
AIM London 1,500 $1,000,000 1 Year
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Part I: Who’s Involved?• Private Company
– Management– Counsel– Shareholders– Investment banker
• Shell Company Management– Management– Shareholders– Counsel
• Other– Investor Relations, Public Relations– Market Makers– NASD– SEC (if Bulletin Board shell is used)
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Part I: What Is The Process?
• Phase I: Prepare company for RTO• Phase II: Develop and recommend
strategy• Phase III: Execute transaction and funding• Phase IV: Post-transaction details
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Part I: When To Do an RTO?
• Need additional capital for growth or liquidity
• Sufficient milestones met– Appropriate revenues– Profitability on horizon
• Current capital market ideal for RTOs
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Part I: Where Will the Co Trade?
• Pink Sheets• Over the Counter Bulletin Board (OTCBB)• AMEX• NASDAQ
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Part II: SCCP Approach
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Part II: SCCP Approach
• We construct a custom-designed financial program to help the new public company effectively compete in the capital markets
• Services offered include:– Manage the RTO process– Sponsorship at investor conferences– Introductions to IR, legal and accounting firms
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Part II: SCCP Value Creation
• The RTO is a key component of the SC Capital value creation process– 120 day process
• Beyond the RTO– Engineer a series of accretive financings– Obtain a broad investor base– Positioned to progress to bigger markets
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Part III: Value Creation Plan
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Part III: RTO Process Phase I
• Prepare company for RTO– Due diligence on acquiring company– Prepare Investment Memorandum– Prepare list of available shells– Retain auditor and legal counsel– Begin audit
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Part III: RTO Process Phase II
• Develop and recommend strategy– Financing plan– Listing roadmap– Finish audit– Recommendation for RTO target and
transaction structure– Letter of Intent– Trial balloon for institutional funding
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Part III: RTO Process Phase III
• Execute transaction and funding– Due diligence on shell– Reorganization plan– Shareholder approvals (acquirer and shell)– Negotiation with institutional investor– Closing of RTO and institutional funding
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Part III: RTO Process Phase IV
• Post transaction details– Filings (e.g. 8-K, SB-2, 14C, 10-Q) if OTCBB
and press release issued– File 15C211 – Add market makers– Introduction of IR/PR and research firms– Schedule conferences– Trading begins
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Part IV: RTO Examples
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Part IV: RTO Examples
• Some of today’s leading companies had their roots in shell mergers– New York Stock Exchange– Berkshire Hathaway– Turner Broadcasting System– Occidental Petroleum– Blockbuster Entertainment– Radio Shack