On Monday social media tech startup MigMe reverse listed onto the Australian stock market through mining explorer Latin Gold.
At 11am in Sydney company co-founders Steven Goh and Mei Lin Ng rang – and broke – the bell in Exchange Square in Sydney. Marking the Singapore-based company’s official listing onto the ASX, the first trade of 44,000 shares went through at 45 cents a piece.
The July prospectus listed an offer of 40 million shares at an issue price of $0.20 a share, MigMe shares were trading down at $0.34 cents before closing out its first day of trade at $0.39.
The company’s largest shareholder is Big Build Enterprises which is part of the electronics manufacturer Foxconn Technology Group.
The listing and reverse takeover of Latin Gold means the company will start with more than $US10 million in net cash which Goh said would be used to fund its growth plans.
Migme, formerly known as mig33, is an online chat and game social network which is aimed at emerging markets in Asia and the Middle East. It’s monetisation model isn’t based on advertising but in-app purchases.
“It has a business model that is targeted at these emerging markets,” company CEO Steven Goh said, adding, “We have, at Mig, a small number of users in Syria, and when you look at their photos they’re teenage girls.”
He said the company sells about “$10,000 worth of hugs and kisses each month” to its 50,000 active users in Syria.
Until yesterday, the last company to use the ASX ticker MIG was Macquarie Infrastructure Group.
Since January there have been more than a dozen reverse take over announcements on the ASX with a good portion of them involving the exit of mining shells or exploration companies and small cap tech companies.
The rise of reverse takeovers is a sign of Australia’s transitioning economy with funds exiting the mining sector and looking for new opportunities. But whether it is a good sign is really yet to be seen.
Venture Capitalist Dan Petrie told Business Insider it is a dangerous trend which has the potential to give tech stocks a bad name in Australia.
“You go and back some tech company into a mining stock, you allow them to list without the normal rigour, you’re going to blow up a whole lot of retail investors’ money. I think it’s ridiculous and highly inappropriate, it’s a silly idea,” he said.
“Hopefully it doesn’t get any traction because all that will do is destroy any credibility the technology sector might have in this country.”
While those involved in the transactions have told Business Insider it is a cheaper way to list, raise funds and give existing shareholders an exit. More on that here.
The majority of the backdoor listings and reverse takeovers run offerings on the minimum issue price of $0.20 cents a share – the ASX’s merit-based rule which aims to stop companies from trading with a value of anything below that price.
Without pointing to any specific companies IG market strategist Evan Lucas said some unconventional listing approaches could be seen as “penny dreadfuls”.
He said there has been a run of them because “cash is cheap” and there’s plenty of it around. But this environment is relatively new.
“Two years ago a listing like this would’ve got absolutely smashed,” he said.
“Anything that is listing under $150 million I run for the hills.
“At $20 million there are houses in Sydney and Melbourne that are worth more.”
Lucas said when these small caps start to tap investors on the shoulders you have to wonder why they’re listing, whether it is to service debt, grow or for the sake of it.
He said you need to look at how far away the company is from earning, how much debt they’re carrying and whether its prospective earnings are realistic.
“When you start getting these small stocks blowing up people lose confidence in the IPO market,” he said, adding that hurts the free flow of capital which is what ASIC is watching.
Some of the reverse takeovers announced this year include anti-counterfeit tech company YPB Group which officially reverse listed onto the ASX on August 7 through AUV Enterprises at an initial offering of $0.20 a share which raised about $3 million. On Monday the company closed down 17.5% at $0.165 a share.
Rare earths miner Lithex Resources has flagged a backdoor listing with performance-based marketing business Mpire Media which is looking to raise up to $5 million at $0.20 cents a share.
Online company Australian Travel Group will reverse into Red Gum Resources in coming months. Red Gum is currently trading at $0.006 a share and has been on a travel acquisition spree. The prospectus offering includes a prospectus offering of $3 million at $0.20 per share.
Question and answer social media network Spring.me teamed up with GRP Corporation for its backdoor listing. GRP’s shares have been suspended from trading until the ASX confirms its compliance with listing regulations. At the end of June it had raised more than $900,000 of the $1.5 million it was looking for.
Junior explorer InterMet Resources and Silicon Valley-based recruitment startup 1-Page are involved in an RTO. This month 1-Page increased its prospectus offering from $7 million to $8.5 million at an issue price of $0.20 a share.
Data security company Covata, of which TPG Telecommunications is a major shareholder, is in the middle of a reverse listing deal with uranium exploration company Prime Minerals as it moves to list on the ASX. Prime finished at $0.02 a share on Monday. Under the deal, Covata is hoping to raise at least $2.5 million on a minimum issue price of $0.20 a share.
Late last month ASIC said the number of reverse takeovers has not gone unnoticed. ASIC commissioner John Price said the rise also occurred during the late 1990s and subsequent tech bust in the early 2000s and caused a number of regulatory issues, especially around disclosures and the objectivity of independent expert reports.
“Where there is change of business activity, there needs to be good discussion of what the new business model is going to be, what the new business plan is going to be. Some of the disclosure we’re seeing around this, unfortunately, is not up to scratch,” Price said.
“If a company is changing activities in this way, they should also be disclosing if they’re going to need any additional funding in the short term, how they’re going to get that funding and what that means to investors.”
Since mid-2013 there have been 14 tech companies list on the ASX and since January there have been 55 listings in total onto the ASX.