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NEO Exchange Announces New Capital Markets Listing Vehicle: the Growth Acquisition Corporation™ or G-Corp™

April-16-2021

Lawyer David Coll-Black, William (Bill) Gorman, Stephen Inglis, Stephen Pincus
Area Corporate and Commercial, Corporate Finance and Securities, Mergers and Acquisitions, REITs and Income Securities, Private Equity

Summary

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NEO Exchange Inc. (“NEO”) announced the creation of a new publicly traded acquisition vehicle, the Growth Acquisition Corporation (“G-Corp”), designed to enable private, mid-market growth companies to access capital and the public market with reduced risks.

NEO has launched the G-Corp Pilot Program, which implements a listing framework similar to that of special purpose acquisition companies (SPACs). G-Corps are intended to provide mid-market growth companies that may not be large enough for a typical SPAC qualifying transaction with an avenue to go public.

While SPACs have existed for decades in the United States and have been in Canada since 2015, they have experienced significant growth in recent years.

Goodmans has played a leading role in the growth of SPACs in Canada, applying its extensive initial public offering (IPO) experience and deep expertise in capital markets innovation to the development of the sector. We look forward to working with sponsors, underwriters, potential targets and other interested parties to explore and utilize the G-Corp structure.

Background

Like SPACs, G-Corps are blind pool entities that complete an IPO for the purpose of raising proceeds to be used to fund a qualifying transaction. The founders of a G-Corp acquire a promote interest of up to 20% of the G-Corp’s share capital immediately following the closing of the IPO and invest “at risk” capital to fund the G-Corp’s working capital. A G-Corp’s escrowed funds and any interest earned on the escrowed funds must be returned to investors if a qualifying transaction is not completed within the permitted timeline.

Although G-Corps are similar to SPACs in many respects, G-Corps have the following unique features:

  • no redemption rights are provided to investors in connection with a G-Corp’s qualifying transaction;
  • qualifying transactions must be approved by a majority shareholder vote excluding votes of the founders;
  • a G-Corp must raise minimum IPO proceeds of $2 million;
  • founders invest ‘at-risk’ capital in an amount sufficient to provide the G-Corp with at least $300,000 of working capital after payment of formation and IPO costs;
  • 100% of the IPO proceeds are deposited in escrow until the qualifying transaction;
  • the maximum permitted timeline is 24 months to identify a qualifying transaction and 27 months to close a qualifying transaction; and
  • the minimum market capitalization must be $30 million or more immediately following closing of a qualifying transaction.

Listing as a G-Corp on the NEO

Issuers seeking to be listed through the G-Corp Pilot Program must schedule a pre-filing meeting with NEO to review the issuer’s eligibility and suitability for the program. As a precondition to listing as a G-Corp, NEO expects an applicant’s management team to have experience in private equity markets and/or with pooled capital vehicles. Once deemed eligible, applicants submit documentation to NEO describing the proposed structure of the G-Corp, which must be approved before NEO proceeds with its standard listings review process.

For further information on SPACs or G-Corps, please contact any member of our Corporate Finance and Securities Group.

The authors would like to Sasha Seeber, Articling Student-at-Law, for his assistance in preparing this Update.

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