For those sat on the fence,1 Jun 2023 09:43
Re cash shells?
Cash shells are simply stock market vehicles which have no assets apart from some cash and their listing on a stock market.
Some cash shells are regarded as ‘legacy cash shells’ meaning that they were once trading companies which, for a variety of reasons, have decided to cease trading. At this point, they can either return cash on their balance sheet to their shareholders or leverage the value of their listed status by finding a private company to undertake a reverse transaction with.
Other cash shells or SPACs (Special Purpose Acquisition Company) may have listed on a stock market with the sole intention of seeking an attractive privately-owned company to undertake a reverse transaction with.
The cash shell marketplace
The UK cash shell market place is very dynamic with new cash shell companies formed or coming to the stock market frequently. In most cases cash shells don’t wait around too long before commencing a transaction with a private company. Understandably, owners of cash shells are generally risk averse and so more inclined to be attracted to private companies that have a successful track record or growth opportunities.
What benefits do cash shells offer?
Entrepreneurial led companies seeking a stock market listing can use a cash shell as a vehicle to raise funding and secure a successful stock market listing. Cash shells offer significant benefits including;
There is already a transparent amount of cash in the cash shell ready for the private company to use
The cash shell will pay the majority of the upfront stock market listing fees, thereby de-risking the listing process from the private company’s perspective
The cash shell will already have shareholders and it may be possible to raise further funding from these
The private company will gain control of the new entity that is created (combined cash shell and private company)
The process of listing the private company on a stock market by using the cash shell may be more beneficial than a traditional route such as an IPO
What is a reverse takeover?
Often cash shell transactions are referred to as reverse takeovers. In a reverse takeover, the stock market listed cash shell acquires the private company. Since the private company will nearly always be larger than the cash shell in terms of its value, it will end up with the majority of shares in, and thus control of, the merged entity. Therefore in these transactions, the cash shell is said to have undertaken a ‘reverse takeover’, and the private company is said to have ‘reversed into the cash shell’.
What do growing companies gain by undertaking a cash shell transaction?
Growing companies who are considering a listing on a stock market via a cash shell are generally looking for similar benefits to those companies that choose to list on a stock market via an IPO. These include:
Access to an immediate tranche of funding
A platform which enables them to raise further funding f
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