Covata Just Completed Its Reverse Takeover On The Australian Stock Exchange -- It's A Trend To Watch

Photo: Getty/Gareth Copley

Data security company Covata completed its reverse takeover of uranium exploration shell Prime Minerals to list on the Australian Stock Exchange on Monday, raising $15 million in the process.

It’s the latest of more than a dozen reverse takeovers – and back door listings – executed by tech companies in Australia in the past 12 months, with most using the ASX’s minimum issue price of 20 cents a share. Other companies that have listed using this mechanism include MigMe, which closed Monday trading at 34 cents and 1-Page which was trading at 41 cents. There’s more on the trend here.

With a total market cap of $74 million, Covata is one of the biggest RTOs this year. According to its prospectus the company was looking to raise a minimum of $2.5 million

“We are delighted to list on the ASX, and particularly pleased with the strong level of investor interest that resulted in the equity offering being oversubscribed,” Covata CEO and founder Trent Telford said.

At close, nearly 4.5 million shares had been traded on the company’s first listed day.

“You’re always going to get some people [selling], the first week of listing is a dangerous time,” Telford told Business Insider.

“We’ve got 150 odd shareholders, some of them have been in for a long time, some of them have been in since day one, eight years ago I founded the company.

“You’re always going to get, in any listing, some washout, you’ve just got to hope you’ve got enough support.

“When you look at three million shares out of what’s on issue… it represents a very small part of the register.”

Here’s what Covata said it would do with the funds raised.

Before the company listed as Covata it was known as Cocoon. Historically Cocoon has posted big losses – something the company attributes to product development.

Over the past three financial years Cocoon posted multi-million-dollar losses. In 2012 the company was hit with a total loss of more than $11.1 million, in 2013 that number was $8.376 million and at June 30 this year after tax it was a loss of $9.769 million.

During 2014 the company earned tech-related revenues of less than $450,000, up from $177,000 in 2013.

In the company’s prospectus it stated if it didn’t successfully raise the maximum subscription listed it may not be able to execute all of its proposed expansion and operational plans.

“The company may need to significantly reduce planned expenditure on research and development, quality assurance, marketing and certification activities,” Covata said in the prospectus. “This may significantly impact the company’s ability to achieve its goals and may in turn impede the financial condition and rate of growth of the company.”

The company has a patented security offering which it hopes will change the way big business secures data from hackers. And while tech companies are known for making big losses in the early days of product development, with many investing as much as they can back into the company, the data below shows employee benefits, which includes remuneration for about 40 employees, has been one of the company’s biggest costs.

Telford said he’s confident the strong shareholder register and management team will be able to “build the value in the company in a sustainable fashion”.

“We’ve spent $30 million [building the company],” Telford said, adding, “Technology takes a lot of time and costs a lot of money.”

In terms of deals, the company has existing agreements in place with NSC Global Services and Verizon Australia to resell its product as well as TPG Telecom which previously invested in the company so it would develop four products exclusively for the telco.

“With the listing and a greater market profile and enhanced market credibility, Covata is well positioned to continue its commercialisation strategy that will drive the global growth of the Covata platform,” Telford said today.

Covata closed Monday trading on the ASX at 20 cents a share.

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