Going Public Through a Capital Pool Company

A Capital Pool Company (“CPC”) provides private companies with an established route to a public listing in Canada. The CPC program is unique to the TSX Venture Exchange (“TSXV”) and combines an already-listed public vehicle with a private operating company through a Qualifying Transaction (“QT”).

For private companies considering going public, a CPC can provide an alternative to a conventional Reverse Takeover (“RTO”) or traditional Initial Public Offering. Choosing the right structure depends on the company, its financing requirements, valuation, management team and longer-term capital markets objectives.

What Is a Capital Pool Company?

A Capital Pool Company is a TSXV-listed company that initially has no commercial operations and no assets other than cash. It is established by experienced directors and officers, raises seed capital and completes an initial public offering before identifying an operating business or assets to acquire.

The objective of the CPC is to identify an appropriate private company or business and complete a transaction that allows the resulting company to meet the requirements for a regular TSXV listing.

That transaction is known as a Qualifying Transaction.

What Is a Qualifying Transaction?

A Qualifying Transaction occurs when a CPC acquires or combines with a private operating business.

The TSX Venture Exchange describes a Qualifying Transaction as effectively a reverse takeover of a CPC by an operating business. Following completion of the transaction and satisfaction of the applicable TSXV listing requirements, the CPC becomes a regular public company.

This is why CPC Qualifying Transactions and conventional Reverse Takeovers are closely related going-public structures, although the processes and transaction dynamics can be different.

Learn more about Reverse Takeovers in Canada »

Why Consider a Capital Pool Company?

For the right private company, a CPC Qualifying Transaction can provide several potential advantages:

• Established public vehicle – the CPC is already listed on the TSX Venture Exchange.
• Defined regulatory framework – CPCs and Qualifying Transactions operate under TSXV Policy 2.4.
• Experienced capital markets participants – CPCs are established by directors and officers with relevant business and public-market experience.
• Financing flexibility – financing can often be completed in conjunction with the Qualifying Transaction.
• Alternative route to a public listing – the CPC structure can be evaluated alongside a conventional RTO or IPO.

The quality of the CPC, its management team, shareholders, capitalization, available cash and proposed transaction terms can all affect whether a particular CPC is suitable for a private company.

The CPC Qualifying Transaction Process

1. Identify the Right CPC

The first step is to identify and evaluate potential CPCs, including their management teams, capitalization, cash position, shareholder base and transaction expectations.

2. Structure the Qualifying Transaction

The CPC and private company negotiate the principal terms of the transaction, including valuation, ownership, management, financing and the proposed capital structure of the resulting public company.

3. Prepare for the Public Markets

The private company must prepare the financial, legal, technical and disclosure information required for the transaction and demonstrate that the resulting issuer satisfies the applicable TSXV listing requirements.

4. TSXV Review and Approval

The TSX Venture Exchange reviews the proposed Qualifying Transaction and the resulting issuer against its applicable policies and listing requirements.

5. Complete the Qualifying Transaction

Once the required approvals and closing conditions have been satisfied, the transaction is completed and the resulting company trades as a regular TSXV-listed issuer.

CPC or Conventional Reverse Takeover?

A CPC Qualifying Transaction and a conventional Reverse Takeover can both provide private companies with a route to the Canadian public markets. However, the existing shareholders, capitalization, regulatory process, financing requirements and negotiating dynamics can be significantly different.

There is no single going-public structure that is appropriate for every company.

The more important question is:

Which route provides the most appropriate structure for your company, shareholders and long-term capital markets strategy?

A company considering a Canadian public listing should evaluate a CPC Qualifying Transaction alongside conventional Reverse Takeovers, Initial Public Offerings and other available listing alternatives before committing to a transaction.

Is a CPC Qualifying Transaction Right for Your Company?

Going public should begin with selecting the right structure rather than selecting the first available public vehicle.

GoPublicInCanada.com and ITB Solutions Incorporated have been advising companies on Canadian going-public transactions and capital markets strategies since 2005.

If your company is considering a Capital Pool Company Qualifying Transaction, Reverse Takeover or another route to a Canadian stock exchange listing, contact us to discuss your company, objectives and available alternatives.

Contact Us to Discuss Your Going-Public Strategy »