Four Things Everyone Needs to Know about the NEO’s New G-CorpTMMonday, April 19, 2021
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The NEO Exchange Inc. (the “NEO”) recently announced a new publicly traded acquisition vehicle that enables private, mid-market growth companies to access capital and go public with reduced risk. The Growth Acquisition Corporation (the “G-CorpTM”) is permitted to raise up to $30 million pursuant to an initial public offering (“IPO”) so that it can acquire one or more businesses within 24 months from listing.
Developed jointly by the NEO and WD Growth I Corp. (“WD Growth”), the G-CorpTM addresses a gap in the capital markets for acquisition corporations. The G-CorpTM is a solution for mid-market growth companies who aspire to list on a senior stock exchange. The G-CorpTM leverages the NEO’s existing special purpose acquisition corporation (“SPAC”) requirements with a few key differences.
We highlight below four things everyone needs to know about the G-CorpTM, including how it resembles a SPAC and certain of its distinguishing features.
1. Some Things Stay the Same
The G-Corp™ shares similarities with a SPAC. Both vehicles are blank-cheque companies that raise money through an IPO in order to acquire one or more businesses by way of a qualifying transaction (a “QT”). If either a G-Corp™ or a SPAC fails to complete a QT during a permitted timeline (see below), the IPO proceeds will be returned to its investors on a pro rata basis.
2. Not Too Big, Not Too Small
Whereas existing shell options for junior companies overwhelmingly raise less than $1M and SPACs are required to raise at least $30M, G-CorpsTM are permitted to raise between $2M and $30M from founders and IPO investors. This amount is intended to allow the G-CorpTM to acquire one or more private companies with a combined enterprise value between $30M and $500M.
3. No Redemption Risk
Shareholders of SPACs are allowed to redeem their shares prior to the QT, which gives rise to uncertainty regarding the amount of cash that will be available to complete the QT. The G-CorpTM addresses this by removing shareholders’ right to redeem their shares prior to the QT. Instead, the G-CorpTM is required to obtain approval of the QT from a majority of shareholders (excluding founders and the sponsor).
In Canada, SPACs are frequently structured so that they have 21 months to complete a QT with an automatic extension to 24 months if the SPAC has entered into a letter of intent, agreement in principle or definitive agreement in respect of a QT. If additional time is required to complete a QT, the permitted timeline can be extended to up to 36 months with shareholder approval.
In contrast, a G-CorpTM must identify a QT within 24 months from the closing of the IPO with an automatic extension to 27 months if the G-CorpTM has entered into a letter of intent, agreement in principle or definitive agreement in respect of a QT. There is no concept of an extension beyond this timeline for a G-CorpTM.
As counsel to Canada’s first two G-CorpsTM, Wildeboer Dellelce LLP is uniquely positioned to advise parties interested in this novel listing vehicle. If you have any questions with respect to the G-CorpTM, please contact Perry Dellelce (firstname.lastname@example.org), Jeff Hergott (email@example.com), Michael Rennie (firstname.lastname@example.org), Jessica Sorbara (email@example.com), Colin Romano (firstname.lastname@example.org) or any other member of Wildeboer Dellelce LLP.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.